There Are Two Events, 1 and 2

question 35

Multiple Choice

There are two events, 1 and 2.The probability of event 1 is p and the probability of event 2 is 1 - p.Sally Kink is an expected utility maximizer with a utility function is pu(c₁) + (1 - p) u(c₂) , where for any number x, u(x) = 2x if x < 1,000 and u(x) = 1,000 + x if x is greater than or equal to 1,000.

• A)Sally is a risk lover.
• B)Sally will be a risk averter if she is poor but will be a risk lover if she is rich.
• C)Sally will be a risk lover if she is poor but a risk averter if she is rich.
• D)If there is no chance of her wealth exceeding $1,000, then she will take any bet that has positive expected net winnings.
• E)None of the above.

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