Sally Kink Is an Expected Utility Maximizer with Utility Function

question 1

Multiple Choice

Sally Kink is an expected utility maximizer with utility function pu(c₁) + (1 - p) u(c₂) , where for any x < 7,000, u(x) = 2x, and for x greater than or equal to 7,000, u(x) = 14,000 + x.

• A)Sally will be risk averse if her income is less than $7,000 but risk loving if her income is more than $7,000.
• B)Sally will be risk neutral if her income is less than $7,000 and risk averse if her income is more than $7,000.
• C)Sally will never take a bet if there is a chance that it leaves her with wealth less than $14,000.
• D)For bets that involve no chance of her wealth exceeding $7,000, Sally will take any bet that has a positive expected net payoff.
• E)None of the above.

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Definitions:

Denial

A psychological defense mechanism where an individual refuses to accept reality or facts, effectively ignoring external truths.

Extraversion

A personality trait characterized by outgoingness, high levels of social engagement, and a high level of energy and enthusiasm.

Introversion

How shy and reserved a person is.

Jungian Theory

A theory of psychology that emphasizes the importance of the individual psyche and the personal quest for wholeness, developed by Carl Jung.