Investments A and B both cost $100,000 and each promises a single payoff in one year.The distribution of payoffs for each investment appears below.
Ignoring possible differences in nondiversifiable risk,which investment would a risk-averse investor prefer,and why?
Definitions:
Human Nature
The inherent characteristics, including ways of thinking, feeling, and acting, that all humans are believed to share.
Group Standard
A set of norms or expected behaviors shared by a group of individuals.
Cognitive Dissonance Theory
A theory suggesting that individuals experience psychological discomfort (dissonance) when holding two or more contradictory beliefs, ideas, or values.
Role-Playing Theory
The concept that individuals learn and understand roles by acting them out, which can influence their behavior and perceptions in various social contexts.
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