Question

You have a $10,000, you must choose between Gamble A and Gamble B. Gamble A will cost $5,000. If you win, you will get $15,000, but if you lose, you will get nothing. On the other hand, Gamble B will cost $10,000 that will give $30,000 if you win, otherwise get nothing if lost. You are risk averse, and your preference for wealth (W) is specified by the relationship U(W)= √W. Probability of wining is 0.4 and losing is 0.7. Which gamble will you choose and why?

Answer 1

The answer of this is b 0.8 + 9 equal 100 because if that’s not the answer then it’s 10000- 0.7