Oskar's Preferences Over Gambles in Which the Probability of Events

question 32

Multiple Choice

Oskar's preferences over gambles in which the probability of events 1 and 2 are both 1/2 can be represented by the von Neuman-Morgenstern utility function .5y^.5₁ + .5y^.5₂, where y₁ is his consumption if event 1 happens and y₂ is his consumption if event 2 happens.A gamble that allows him a consumption of $9 if event 1 happens and $25 if event 2 happens is exactly as good for Oskar as being sure to have an income of

• A)$12.5.
• B)$9.
• C)$16.
• D)$17.
• E)None of the above.

---

Definitions:

Revenues

The amounts earned and recorded from a company’s day-to-day business activities, mostly when a company sells products or provides services to customers or clients.

Retained Earnings

The portion of net income that is retained by the company rather than distributed to its owners as dividends.

Statement of Stockholders' Equity

A financial statement showing the changes in the equity section of the balance sheet during a certain period, including shares issued, dividends paid, and earnings.

Income Statement

A financial document detailing a company's revenues, expenses, and net income over a specific period, illustrating its profitability.