Harley's Current Wealth Is $600, but There Is a

question 20

Multiple Choice

Harley's current wealth is $600, but there is a .25 probability that he will lose $100.Harley is risk neutral.He has an opportunity to buy insurance that would restore his $100 if he lost it.

• A)Harley would be willing to pay a bit more than $25 for this insurance.
• B)Harley would be willing to pay up to $25 for this insurance.
• C)Since Harley is risk neutral, he wouldn't be willing to pay anything for this insurance.
• D)Since Harley's utility function is not specified, we can't tell how much he would be willing to pay for this insurance.
• E)Harley would not be willing to pay more than $16.66 for this insurance.

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Definitions:

Psychodynamic Theory

Freudian theory that unconscious forces determine behavior.

Defense Mechanisms

In psychodynamic theory, unconscious mental strategies that the mind uses to protect itself from distress.

Id

In psychodynamic theory, the component of personality that is completely submerged in the unconscious and operates according to the pleasure principle.

Ego

In psychodynamic theory, the component of personality that tries to satisfy the wishes of the id while being responsive to the superego.