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Are you someone who prefers to take risk or avoid risk?
Are you someone who prefers to take risk or avoid risk?
A. You are given $5,000 to invest. You must choose between (i) a sure gain of $2,500 and (ii) a 0.50 chance of a gain of $5,000 and a 0.50 chance to gain nothing. What is the expected gain with each strategy? Which strategy do you prefer (this is an opinion so no right answer!)?
B. You are given $10,000 to invest. You must choose between (i) a sure loss of $2,500 and (ii) a 0.50 chance of losing $5,000 and a 0.50 chance to lose nothing. What is the expected loss with each strategy? Which strategy do you prefer (this is an opinion so no right answer!)?
