An Individual Has Preferences Consistent with Standard Expected Utility Theory

question 9

Multiple Choice

An individual has preferences consistent with standard expected utility theory. They have utility function U(x) over wealth x. Starting with initial wealth of $10,000,the person is then faced with two choice problems. The first involves a choice between (A) no gamble and (B) a gamble with an equal chance of winning $1,800 and losing $1,000. The second choice problem,the person first has $1,000 taken away (resulting in the adjustment of the reference point) . The choice is then between (C) being given back $1,000 for sure and (D) an equal chance of winning $2,800 or nothing. What can be said about the choices the person would make?

• A)The person would never choose both A and D.
• B)The person would never choose both A and C.
• C)The person would choose A and D.
• D)The person would choose A and C.

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Definitions:

Tectum

Roof of the midbrain.

Superior Colliculi

Paired structures in the midbrain that are involved in visual and auditory reflexes and coordinate head and eye movements.

Cerebrum

The cerebrum is the largest part of the brain, responsible for higher brain functions such as thought, action, reasoning, emotion, and memory.

Inferior Colliculi

Pair of structures located in the midbrain, involved in auditory processing and acting as a major relay center for sound information.