Every $1 Invested in Safe Sox Will Yield $2 for Sure

question 23

Multiple Choice

Every $1 invested in Safe Sox will yield $2 for sure. Each $1 invested in Wobbly Umbrellas will yield $8 with probability and $0 with probability . An investor has $10,000 to invest in these two companies and her von Neumann-Morgenstern utility function is the expected value of the natural logarithm of the total yield on her investments. If S is the amount of money that she invests in Safe Sox and $10,000 2 S is the amount that she invests in Wobbly Umbrellas, what should S be to maximize her expected utility? (Pick the closest answer.)

• A) $1,111
• B) $3,333
• C) $5,000
• D) $6,667
• E) $9,111

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Definitions:

Experimental Design

The planning of an experiment to ensure that it can test hypotheses effectively and produce valid and reliable results.

Attrition

The loss of participants during the course of a study, which can potentially bias the results.

Maturation

The process of growth or development, often in the context of organisms or psychological development in research.

Diffusion

The process by which an innovation is communicated through certain channels over time among members of a social system.