Essay
Consider these four choices: A. $1,000,000 for sure
B. 10 chance of $5,000,000 and .89 chance of $1,000,000 and .01 chance of $0
C. 10 chance of $5,000,000 and .90 chance of $0
D. 11 chance of $1,000,000 and .89 chance of $0
It is commonly observed that people prefer A to B, and prefer C to D. Show that this pair of choices is inconsistent with expected utility maximization.
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A preferred to B implies that u(1000000)...View Answer
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Correct Answer:
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