An Individual Has Preferences Consistent with Standard Expected Utility Theory

question 9

Multiple Choice

An individual has preferences consistent with standard expected utility theory. They have utility function U(x) over wealth x. Starting with initial wealth of $10,000,the person is then faced with two choice problems. The first involves a choice between (A) no gamble and (B) a gamble with an equal chance of winning $1,800 and losing $1,000. The second choice problem,the person first has $1,000 taken away (resulting in the adjustment of the reference point) . The choice is then between (C) being given back $1,000 for sure and (D) an equal chance of winning $2,800 or nothing. What can be said about the choices the person would make?

• A)The person would never choose both A and D.
• B)The person would never choose both A and C.
• C)The person would choose A and D.
• D)The person would choose A and C.

Identify strategies for mitigating moral hazard in various settings.

Understand the concept of adverse selection and its implications on markets.

Distinguish between moral hazard and adverse selection and their respective remedies.

Grasp how personal investment influences loan credibility and project viability.

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Definitions:

Religious Diversity

The existence of a variety of religious beliefs, practices, and institutions within a given society, reflecting the freedom of belief and pluralism.

Intellectualism

The exercise of the intellect or an emphasis on intellectual pursuits, often associated with a broad and deep understanding across multiple fields of study.

Frontier Dwellers

People living on the frontier or borderland of a country, often in the context of expanding settlements and the challenges of remote or undeveloped areas.

Colonial Government

The system of administrative and territorial governance established by a colonial power over a colonized area or people, often characterized by exploitation and economic control.