Oskar's Preferences Over Gambles in Which the Probability of Events

question 32

Multiple Choice

Oskar's preferences over gambles in which the probability of events 1 and 2 are both 1/2 can be represented by the von Neuman-Morgenstern utility function .5y^.5₁ + .5y^.5₂, where y₁ is his consumption if event 1 happens and y₂ is his consumption if event 2 happens.A gamble that allows him a consumption of $9 if event 1 happens and $25 if event 2 happens is exactly as good for Oskar as being sure to have an income of

• A)$12.5.
• B)$9.
• C)$16.
• D)$17.
• E)None of the above.

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