There Are Two Events, 1 and 2

question 38

Multiple Choice

There are two events, 1 and 2. The probability of event 1 is p and the probability of event 2 is 1 - p. Sally Kink is an expected utility maximizer with a utility function is pu(c₁) + (1 - p) u(c₂) , where for any number x, u(x) = 2x if x < 1,000 and u(x) = 1,000 + x if x is greater than or equal to 1,000.

• A) Sally is a risk lover.
• B) Sally will be a risk averter if she is poor but will be a risk lover if she is rich.
• C) Sally will be a risk lover if she is poor but a risk averter if she is rich.
• D) If there is no chance of her wealth exceeding $1,000, then she will take any bet that has positive expected net winnings.
• E) None of the above.