A risk averse is given this: Option1: 1000 with p=0.25 and 100 with p=0.75. Option 2: 325 for sure. Which option would he choose? For this part, I know the person will choose option 2 over option 1. However, the question continues,change to $320 for sure, what would be his choice?

Anyone can guide?please

  • 3
    $\begingroup$ I'm voting to close this question as off-topic because it is a homework question without effort shown. $\endgroup$
    – FooBar
    May 3 '15 at 15:43
  • $\begingroup$ @FooBar Please la I have shown my answer for first part because the risk averse individual prefers safer option with same value than riskier option with same value. However, I am not sure second part $\endgroup$ May 3 '15 at 15:44
  • 3
    $\begingroup$ There is insufficient information to answer. You need additional information about the preferences, such as the consumer's Neumann-Morgenstern utility function or other choices. Also, FooBar was correct: you should always immediately state that what you are posting is a homework question, and then show effort in the question itself, not in a comment afterwards. You should edit your question accordingly. $\endgroup$
    – Giskard
    May 3 '15 at 17:34
  • $\begingroup$ This question can be reopened as noted if it is edited to meet community standards. Please consider adding additional information, and further explaining your work. $\endgroup$ May 5 '15 at 15:22

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