Sally Kink Is an Expected Utility Maximizer with Utility Function

question 9

Multiple Choice

Sally Kink is an expected utility maximizer with utility function pu(c₁) = (1 - p) u(c₂) , where for any x < 1,000, u(x) = 2x, and for x greater than or equal to 1,000, u(x) = 2,000 + x.

• A)Sally will be risk averse if her income is less than $1,000 but risk loving if her income is more than $1,000.
• B)Sally will never take a bet if there is a chance that it leaves her with wealth less than $2,000.
• C)Sally will be risk neutral if her income is less than $1,000 and risk averse if her income is more than $1,000.
• D)For bets that involve no chance of her wealth exceeding $1,000, Sally will take any bet that has a positive expected net payoff.
• E)None of the above.

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Definitions:

Eclectic Approach

A method that combines elements from various theories or techniques to tailor treatment to an individual's needs.

Psychological Perspective

An approach or viewpoint in psychology that emphasizes understanding human behavior and thought processes based on psychological principles and theories.

Freudian Psychodynamic

A theoretical framework that focuses on unconscious processes and childhood experiences in shaping personality and behavior.

Covert Processes

Covert processes refer to mental operations or thoughts that are automatic or subconscious, influencing behavior without conscious awareness.