Answered: What type of risk behavior does the…

What type of risk behavior does the person exhibit who is willing to bet $60 on a game where 20% of the time the bet returns $100, and 80% of the time returns $50? Is this a fair bet? Explain.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter18: Auctions

Section: Chapter Questions

Problem 18.1IP

See similar textbooks

Related questions

Q: In a final round of a MegaMillion TV show a contestant has a won $1 million and has a chance of…

A: Cost of play=$1 million Winning cost=$2 million

Q: Why do economists say that people tend to be risk-averse?

A: Different individuals have different preferences towards risk or uncertainty. Most individuals are…

Q: Person D is offered a the same game, for a price of £1.8. They decide are indifferent between…

A: A risk netrual person wil always be indifference between taking a lottery and not taking one. He is…

Q: Jamal has autility function U=W1/2,where W is his wealth in millions of dollars and U is the…

A: The individual choice of investment is highly affected by the risk involved in the investment. The…

Q: Why does the risk-adjusted discount rate reduce the investment's appeal?

A: Risk adjusted discount rate refers to the summation of risk free rat and the risk premium. Risk…

Q: As risk aversion increases, which direction does the certainty equivalent wealth move, holding the…

A: The certainty equivalent can be used by a business looking for investors to calculate how much more…

Q: You ask someone about their preferences over the following pairs of lotteries: Lottery A Lottery B…

A: Expected utility theory is the sum of the utilities weighted y the probability of happening. The…

Q: Tom and Jerry are contestants on Jeopardy. Tom is leading with an accumulation of $12000, while…

A: Given information Tom Tom's initial wealth accumulation = $12,000 Tom's probability of winning = 55%…

Q: ou have a 50 percent chance of making $0, a 40 percent chance of making $100, and a 10 percent…

A: Expected value = 50% x $0 + 40% x $100 - 10% x $100 = 0 + $40 - $10…

Q: If a risk-averse individual owns a home worth $100,000, and that individual is willing to pay $1,000…

A: Risk aversion is the human behaviour against taking risk. Every individual wish to earn maximum with…

Q: Consider a lottery where one can either win $5,000 with a probability of 0.6 or lose $3,000 with a…

A: Risk premium refers to the amount an investor /individual is willing to pay in order to avoid the…

Q: efer to the following table showing the probability distribution of payoffs from an activity to…

A: Ans. The expected value of payoffs is the sum of the product of payoffs and their respective…

Q: In a final round of a MegaMillion TV show, a contestant has won $1 million and has a chance of…

A: Ans in step 2

Q: Discuss indifference curves, how it associates with risk preferences and why understanding it is…

A: Indifference curves are based on a number of assumptions, including that each indifference curve is…

Q: The deciding shot in a soccer game comes down to a penalty shot. If the goal-keepe umps in one…

A: Since both players are playing Nash strategies, by the symmetry of the problem (2 person zero sum…

Q: 0,0 1,2 Consider the following assignment device (for example a fair coin): With probability 1/2 it…

A: Assignment device states player to choose each action with equal probability which is also a mixed…

Q: True or False: A risk-preferring person will always bet, no matter how much the odds are against…

A: Answer is given below

Q: What is the expected payoff from playing ‘Y’ ? What is the expected payoff from playing ‘Z’ ?…

A: Formulas for finding the expected payoff: Expected payoff from playing ‘Y’ = θ1(A) * Payoff of…

Q: Show that an agent with utility function u(x) = log x is more risk averse than an agent with utility…

A: Utility denotes the maximum satisfaction that an individual is able to attain through the use and…

Q: Phil, Stu, and Doug are deciding which fraternity to pledge. They all assign a payoff of 5 to…

A: A Nash Equilibrium is a collection of strategies that players use with the attribute that changing…

Q: In a game, there are three values 1, 000, 2.500 and 5,000 and the cost of the game is 1, 500 . If…

A: Expected Value refers to the anticipated value for investment at some point in the future period. it…

Q: You and I play the following game. Hidden from you, I put a coin in my hand: with probability p it…

A: Given Information- P(putting 10 pence coin in hand) = p P(putting 20 pence coin in hand) = 1 - p…

Q: If a risk-averse individual owns a home worth $100,000, and that individual is willing to pay $1,000…

A: The risk averters are those individuals look forward to minimize risks. They can avoid the chances…

Q: You are a hotel manager and you are considering four projects that yield different payoffs,…

A: Meaning of Boom in Business Cycle: The term boom in the business cycle refers to the situation…

Q: Player 2 L 1,0 0,1 Player 1 0,1 1,0 Suppose Player 2 is using the following strategy: she plays L…

A: In-game theory, there are many distinct sorts of tactics, and they all revolve around the player's…

Q: Person A can trust or not trust person B. If person A decides to not trust, both players get a zero…

A: Extensive form of the game We should have a higher payoff for B for abusing compared to…

Q: You participate in a coin-toss gamble with a weighted coin. The coin has a 70% chance of landing…

A: Expected utility refers to the aggregate economy utility due to which individuals can make…

Q: The risk-return tradeoff is -- an analysis of your risk tolerance an analysis of the risk of a…

A: The Risk-return tradeoff refers to an investment principle that shows the higher risk, higher the…

Q: Define risk-seeking.

A: Risk refers to the possibility of happening something undesirable, People take risk to achieve…

Q: Joey has utility function 1+√x where x is the amount of money he has. He is... A) Cannot tell from…

A: Given utility function - U = 1+√x

Q: Player 2 Left Right Up 4/3 2/8 Player 1 Down 6/9 0/1 In the Nash-equilibrium in mixed strategies,…

A: We are going to find Pure Strategy Nash Equilibrium to answer these questions.

Q: Define risk pooling.

A: Risk pooling refers to health insurance, representing a group of individuals contributing to a…

Q: A wheel of fortune in a gambling casino has 54 different slots in which the wheel pointer can stop.…

A: The expected value of a gamble conveys the average amount of gain anticipated from playing the…

Q: Suppose Xavier has tickets to the Super Bowl, but is terribly ill with a noncontagious infection.…

A: According to the traditional model of risk behavior, the normal person likes to take risks. The…

Q: The chief executive officer of a publishing company says she is indifferent between the certainty of…

A: Individuals who are risk averse tend to fear to face losses instead of potential gains. In the case…

Q: You are at a casino and there are three slot machines you can use to bet on. You must have a return…

A: Given:

Q: Respond to the following questions in a minimum of 175 words: . Consider a situation that you might…

A: Probability is the mathematical term for the likelihood that something will occur. Probability plays…

Q: Tonight at 7pm a professional basketball game featuring the Golden State Warriors and the Washington…

A: Since Yang believes that he is making a fair bet, expected value from his lottery should be x. If…

Q: Define risk aversion and give an example of a risk-averse person?

A: Meaning of Financial Assets: The term financial assets refer to the situation, under which these…

Q: For any given distribution of outcomes and probabilities, describe how preferences over risk affect…

A: The individual's preferences are "well-behaved" enough to be spoken to over probability…

Q: Two restaurants are on the same block. One has been opened for 10 years and is a thriving business.…

A: The answer is as follows:-

Question

What type of risk behavior does the person exhibit who is willing to bet $60 on a game where 20% of the time the bet returns $100, and 80% of the time returns $50? Is this a fair bet? Explain.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

In a final round of a MegaMillion TV show a contestant has a won $1 million and has a chance of doubling the reward. If he loses his winnings drop to $500,000. The contestant thinks his chances of winning is 50%. Should he play? What is the lowest probability of a correct guess that will make his betprofitable? Please show your work.
how do you do you find the expected payback for this problem? Find the expected payback for a game in which you bet $1010 on any number from 00 to 399.399. If your number comes up, you get $400400.
Question 13 Rhodri has a lottery ticket which will pay £80 with probability 0.5 and zero otherwise. He is willing to exchange the lottery ticket for a certain £25. What is the risk premium of the lottery ticket for Rhodri? Round your answer to 2 decimal places. Add your answer
In a final round of a MegaMillion TV show, a contestant has won $1 millionand has a chance of doubling the reward. If he loses his winnings drop to$500,000. The contestant thinks his chances of winning are 50%. Should heplay? What is the lowest probability of a correct guess that will make his betprofitable? Show work
Consider a game where there is a $2,520 prize if a player correctly guesses the outcome of a fair 7-sided die roll.Cindy will only play this game if there is a nonnegative expected value, even with the risk of losing the payment amount.What is the most Cindy would be willing to pay?
A wheel of fortune in a gambling casino has 54 different slots in which the wheel pointer can stop. Four of the 54 slots contain the number 9. For a 1 dollar bet on hitting a 9, if he or she succeeds, the gambler wins 10 dollars plus the return of the 1 dollar bet. What is the expected value of this gambling game? What is the meaning of the expected value result?
In the final round of a TV game show, contestants have a chance to increase their current winnings of $1 million dollars to $2 million dollars. If they are wrong, their prize is decreased to $500,000. The contestant thinks his guess will be right 50% of the time. Should he play? What is the lowest probability of a correct guess that would make playing profitable?
You ask someone about their preferences over the following pairs of lotteries: Lottery A Lottery B Payoff Probability Payoff Probability $200 25% $200 5% $100 45% $100 90% 30% $0 5% Lottery C Lottery D Payoff Probability Payoff Probability $200 20% $200 0% $100 0% $100 45% $0 80% $0 55% The individual says they prefer lotter A over lottery B, and lottery D over lottery C. Is this person using expected utility theory to evaluate these lotteries? How can you know for certain?
Suppose Xavier has tickets to the Super Bowl, but is terribly ill with a noncontagious infection. How would a decision maker perform his economic calculation on whether to attend the game, based on the traditional model of risk behavior?
Suppose your wealth is 8 and you are considering a bet of a 50% chance of winning $4 and a 50% chance of losing $4. What is your risk premium given you have In utility ? Draw a diagram and label the relevant values.
In a large casino, the house wins on its blackjack tables with a probability of 50.9%. All bets at blackjack are 1 to 1, which means that if you win, you gain the amount you bet, and if you lose, you lose the amount you bet. a. If you bet $1 on each hand, what is the expected value to you of a single game? What is the house edge? b. If you played 150 games of blackjack in an evening, betting $1 on each hand, how much should you expect to win or lose? c. If you played 150 games of blackjack in an evening, betting $3 on each hand, how much should you expect to win or lose? d. If patrons bet $7,000,000 on blackjack in one evening, how much should the casino expect to earn? a. The expected value to you of a single game is $ (Type an integer or a decimal.)
How much is his risk on any random day due to late arrival?