There Are Two Events, 1 and 2

question 35

Multiple Choice

There are two events, 1 and 2.The probability of event 1 is p and the probability of event 2 is 1 - p.Sally Kink is an expected utility maximizer with a utility function is pu(c₁) + (1 - p) u(c₂) , where for any number x, u(x) = 2x if x < 1,000 and u(x) = 1,000 + x if x is greater than or equal to 1,000.

• A)Sally is a risk lover.
• B)Sally will be a risk averter if she is poor but will be a risk lover if she is rich.
• C)Sally will be a risk lover if she is poor but a risk averter if she is rich.
• D)If there is no chance of her wealth exceeding $1,000, then she will take any bet that has positive expected net winnings.
• E)None of the above.

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Definitions:

Readjustment

The process of adapting or becoming accustomed to a new situation or environment.

Subjective Appraisal

The process of evaluating or judging something based on personal feelings, tastes, or opinions rather than external facts.

Type of Emotion

Categories or classifications of emotions that describe the variety of human feelings, such as happiness, sadness, anger, fear, and love.

Stress

A physical or emotional response to events that cause bodily or mental tension.