Suppose That, in an Experimental Setting, 100 Students Are Presented

question 56

Essay

Suppose that, in an experimental setting, 100 students are presented with two situations involving risk and return. The students are first asked to choose between Gamble A and Gamble B, where:
Gamble A: The student will receive $1 million with a 100% probability.
Gamble B: The student will receive $1 million with an 89% probability, $5 million with a 10% probability, and $0 million (nothing) with a 1% probability.
The students are then asked to choose between Gamble C and Gamble D, where:
Gamble C: The student will receive $5 million with a 10% probability.
Gamble D: The student will receive $1 million with an 11% probability.
Explain the process of finding the expected values of Gambles A and B. Which option would a risk-neutral student choose? Why?

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Definitions:

B. F. Skinner

An American psychologist and behaviorist known for his work in developing the theory of operant conditioning, which uses consequences to modify the occurrence and form of behavior.

Evolution

The process by which different kinds of living organisms are thought to have developed and diversified from earlier forms during the history of the earth.

Methodological Behaviorist

A perspective in psychology that focuses on observable behaviors and external environmental factors as the primary means of understanding and studying psychological phenomena.

Radical Behaviorist

A philosophical stance within the field of behaviorism that emphasizes the external behaviors of people and rejects internal processes such as thoughts and emotions as relevant for understanding behavior.