A Decision-Maker Is Faced with a Choice Between a Lottery $U = I + 500$

question 32

Multiple Choice

A decision-maker is faced with a choice between a lottery with a 30% chance of a payoff of $30 and a 70% chance of a payoff of $80, and a guaranteed payoff of $65. If the decision maker's utility function is $U = I + 500$ , what is the risk premium associated with this choice?

• A) $0
• B) $1
• C) $2
• D) $3

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