Sally Kink Is an Expected Utility Maximizer with Utility Function

question 8

Multiple Choice

Sally Kink is an expected utility maximizer with utility function pu(c₁) + (1 - p) u(c₂) , where for any x < 8,000, u(x) = 2x, and for x greater than or equal to 8,000, u(x) = 16,000 + x.

• A)Sally will never take a bet if there is a chance that it leaves her with wealth less than $16,000.
• B)Sally will be risk neutral if her income is less than $8,000 and risk averse if her income is more than $8,000.
• C)Sally will be risk averse if her income is less than $8,000 but risk loving if her income is more than $8,000.
• D)For bets that involve no chance of her wealth exceeding $8,000, Sally will take any bet that has a positive expected net payoff.
• E)None of the above.

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Definitions:

Culture-Dependent

Characteristic or behavior that is strongly influenced by cultural beliefs, values, or customs.

Harmful to Society

Having a negative impact on the social fabric, potentially leading to adverse effects on community well-being, trust, and cohesion.

Labeling

Labeling refers to the practice of identifying and naming an individual or group based on certain characteristics or behaviors, often leading to stereotyping.

Disordered Behaviors

Actions or patterns of actions that are abnormal, dysfunctional, or symptomatic of a mental disorder.