Sally Kink Is an Expected Utility Maximizer with Utility Function

question 19

Multiple Choice

Sally Kink is an expected utility maximizer with utility function pu(c₁) + (1 - p) u(c₂) , where for any x < 6,000, u(x) = 2x, and for x greater than or equal to 6,000, u(x) = 12,000 + x.

• A) Sally will be risk averse if her income is less than $6,000 but risk loving if her income is more than $6,000.
• B) Sally will be risk neutral if her income is less than $6,000 and risk averse if her income is more than $6,000.
• C) For bets that involve no chance of her wealth exceeding $6,000, Sally will take any bet that has a positive expected net payoff.
• D) Sally will never take a bet if there is a chance that it leaves her with wealth less than $12,000.
• E) None of the above.

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Definitions:

Need for Achievement

A psychological trait referring to an individual's desire for significant accomplishment, mastering of skills, control, or high standards of success.

Monozygotic Twins

Identical twins that develop from one zygote, which splits and forms two embryos, sharing exactly the same genetic material.

Dizygotic Twins

Also known as fraternal twins, these are siblings that are born at the same time but have developed from two different eggs fertilized by two different sperm.

Environmental Shared

The portion of the environment that is experienced identically by individuals, often used in contrast to "non-shared environment" in studies of heritability.