Consider the Following Scenario When Answering the Following Questions

question 121

Multiple Choice

Consider the following scenario when answering the following questions:
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 percent probability.
Gamble B: The student will receive $1 million with an 89 percent probability,$5 million with a 10 percent probability,and $0 million (nothing) with a 1 percent 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 percent probability.
Gamble D: The student will receive $1 million with an 11 percent probability.
-A student who is risk neutral would choose Gamble B,which has an expected value of ________,over Gamble A,which has an expected value of ________.

• A) $1.39 million; $1 million
• B) $1 million; $1.42 million
• C) $0.89 million; $1 million
• D) $1 million; $0.89 million
• E) $1.10 million; $1 million

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Definitions:

Relationships

Connections or associations between individuals, based on feelings, interactions, and social bonds.

Volunteer Bias

The tendency for volunteers, such as in research studies, to differ from the general population in significant ways, potentially skewing results.

Random Sampling

A method of selecting a sample from a population in which every individual has an equal chance of being chosen.

Correlation Coefficient

A number between −1.00 and +1.00 that indicates the direction (negative or positive) and extent (from none to perfect) of the relationship between two variables.