Lottery A gives $2 million with 10%, $1 million with 80%, and $0 with 10%. ⚫ Lottery B gives $2 million with 12%, $1 million with 6%, and $0 with 82%. ⚫ Lottery C gives $2 million with 40%, $1 million with 20%, and $0 with 40%. ⚫ Lottery D gives $2 million with 3%, $1 million with 24%, and $0 with 73%. Show one example of preference relations which violate Independence of the expected utility theorem, and explain the reason.
Lottery A gives $2 million with 10%, $1 million with 80%, and $0 with 10%. ⚫ Lottery B gives $2 million with 12%, $1 million with 6%, and $0 with 82%. ⚫ Lottery C gives $2 million with 40%, $1 million with 20%, and $0 with 40%. ⚫ Lottery D gives $2 million with 3%, $1 million with 24%, and $0 with 73%. Show one example of preference relations which violate Independence of the expected utility theorem, and explain the reason.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
⚫ Lottery A gives $2 million with 10%, $1 million with 80%, and $0 with 10%.
⚫ Lottery B gives $2 million with 12%, $1 million with 6%, and $0 with 82%.
⚫ Lottery C gives $2 million with 40%, $1 million with 20%, and $0 with 40%.
⚫ Lottery D gives $2 million with 3%, $1 million with 24%, and $0 with 73%.
Show one example of preference relations which violate Independence of the expected utility theorem, and explain the reason.
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