Consider the Following Scenario When Answering the Following Questions

question 25

Multiple Choice

Consider the following scenario when answering the following questions:
Suppose that,in an experimental setting,100 students are asked to choose between Gamble A and Gamble B,where:
Gamble A: The student will receive $5 million with a 100 percent probability.
Gamble B: The student will receive $5 million with a 51 percent probability,$10 million with a 25 percent probability,and $0 million (nothing) with a 24 percent probability.
-A risk-neutral student is

• A) likely to choose Gamble A because it has a higher expected value.
• B) likely to choose Gamble B because it has a higher expected value.
• C) likely to choose Gamble A because the student will win something (as opposed to nothing)with a higher probability.
• D) likely to choose Gamble B because the student will win something (as opposed to nothing)with a higher probability.
• E) indifferent toward Gambles A and B because they have the same expected value.

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Definitions:

Psychosis

A severe mental disorder in which thought and emotions are so impaired that contact is lost with external reality.

Manic-depressive

An alternate term for bipolar disorder, a mental health condition characterized by extreme mood swings including manic highs and depressive lows.

Obsessive-compulsive

Referring to a disorder characterized by uncontrollable, recurring thoughts (obsessions) and behaviors (compulsions) that the individual feels compelled to repeat.

Schizophrenia

A severe mental disorder characterized by distortions in thinking, perception, emotions, language, sense of self, and behavior.