the following lottery scenarios. Which of these is an example of the Allais Paradox, a well-known deviation from expected utility theory? O a. Lottery P offers a 1% chance of winning $10,000 and a 99% chance of winning nothing, while Lottery Q offers a 50% chance of winning $200 and a 50% chance of winning nothing. Even though the expected value of Lottery P is greater, most people choose Lottery Q because they overweight the low probability event in P. O b. Lottery M offers a 90% chance of winning $5,000,000 and a 10% chance of winning nothing, while Lottery N offers a 10% chance of winning $50,000,000 and a 90% chance of winning nothing. Despite Lottery N having a higher expected value, a majority of people choose Lottery M. O c. Lottery X offers a 50% chance of winning $1,000 and a 50% chance of winning nothing, while Lottery Y offers a guaranteed win of $450. Despite the higher expected value of Lottery X ($500 vs $450), a majority of people choose Lottery Y. O d. Lottery G offers a 100% chance of losing $10, while Lottery H offers a 60% chance of losing $20 and a 40% chance of losing nothing. Despite the higher expected loss in Lottery H, people choose it more often because they hope to avoid loss entirely.

the following lottery scenarios. Which of these is an example of the Allais Paradox, a well-known deviation from expected utility theory? O a. Lottery P offers a 1% chance of winning $10,000 and a 99% chance of winning nothing, while Lottery Q offers a 50% chance of winning $200 and a 50% chance of winning nothing. Even though the expected value of Lottery P is greater, most people choose Lottery Q because they overweight the low probability event in P. O b. Lottery M offers a 90% chance of winning $5,000,000 and a 10% chance of winning nothing, while Lottery N offers a 10% chance of winning $50,000,000 and a 90% chance of winning nothing. Despite Lottery N having a higher expected value, a majority of people choose Lottery M. O c. Lottery X offers a 50% chance of winning $1,000 and a 50% chance of winning nothing, while Lottery Y offers a guaranteed win of $450. Despite the higher expected value of Lottery X ($500 vs $450), a majority of people choose Lottery Y. O d. Lottery G offers a 100% chance of losing $10, while Lottery H offers a 60% chance of losing $20 and a 40% chance of losing nothing. Despite the higher expected loss in Lottery H, people choose it more often because they hope to avoid loss entirely.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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