You ask someone about their preferences over the following pairs of lotteries: Lottery A Lottery B Payoff Probability Payoff Probability $200 25% $200 5% $100 45% $100 90% $0 30% $0 5% Lottery C Lottery D Payoff Probability Payoff Probability $200 20% $200 0% $100 0% $100 45% $0 80% $0 55% The individual says they prefer lotter A over lottery B, and lottery D over lottery C. Is this person using expected utility theory to evaluate these lotteries? How can you know for certain?
You ask someone about their preferences over the following pairs of lotteries: Lottery A Lottery B Payoff Probability Payoff Probability $200 25% $200 5% $100 45% $100 90% $0 30% $0 5% Lottery C Lottery D Payoff Probability Payoff Probability $200 20% $200 0% $100 0% $100 45% $0 80% $0 55% The individual says they prefer lotter A over lottery B, and lottery D over lottery C. Is this person using expected utility theory to evaluate these lotteries? How can you know for certain?
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter6: Consumer Choices
Section: Chapter Questions
Problem 1SCQ: Jeremy is deeply in love with Jasmine. Jasmine lives where cell phone coverage is poor, so he can...
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![You ask someone about their preferences over the following pairs of lotteries:
Lottery A
Lottery B
Payoff
Probability
Payoff
Probability
$200
25%
$200
5%
$100
45%
$100
90%
30%
$0
5%
Lottery C
Lottery D
Payoff
Probability
Payoff
Probability
$200
20%
$200
0%
$100
0%
$100
45%
$0
80%
$0
55%
The individual says they prefer lotter A over lottery B, and lottery D over lottery C. Is this person using expected utility theory to evaluate these lotteries? How can you know for certain?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3553ea9b-0557-4fb0-a3e2-a29c908d0eae%2F2931c104-bdbb-4e64-b149-714b4ab87878%2F2r30e0h_processed.png&w=3840&q=75)
Transcribed Image Text:You ask someone about their preferences over the following pairs of lotteries:
Lottery A
Lottery B
Payoff
Probability
Payoff
Probability
$200
25%
$200
5%
$100
45%
$100
90%
30%
$0
5%
Lottery C
Lottery D
Payoff
Probability
Payoff
Probability
$200
20%
$200
0%
$100
0%
$100
45%
$0
80%
$0
55%
The individual says they prefer lotter A over lottery B, and lottery D over lottery C. Is this person using expected utility theory to evaluate these lotteries? How can you know for certain?
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