Jill Is Offered a Choice Between Receiving $50 with Certainty

question 12

Multiple Choice

Jill is offered a choice between receiving $50 with certainty or possibly receiving the proceeds from a gamble. In the gamble a fair coin is tossed, and if it comes up heads, Jill will receive $100; if the coin comes up tails, she will receive nothing. Jill chooses the $50 instead of the gamble. Jill's behavior indicates ________.

• A) regret avoidance
• B) overconfidence
• C) that she has a diminishing marginal utility of wealth
• D) prospect theory loss aversion

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Definitions:

Required Reserve Ratio

The fraction of deposits that banks are legally mandated to keep as reserves and not lend out.

Excess Reserves

The reserves held by financial institutions in excess of the minimum reserve requirements set by central banks; these are not used for lending and can influence the money supply.

Commercial Banks

Financial institutions that provide services such as accepting deposits, providing business and personal loans, and offering basic investment products.

Required Reserves

The minimum amount of funds that a bank must hold in reserve against deposit liabilities, as mandated by central banking authorities.