Chapter 20, Problem 10P

To determine

Risk Aversive and Risk Loving behavior and Expected Value

Concept Introduction:

Risk Aversive and Risk Loving behavior- A person with a decreasing MU_y is a risk aversive who attempts to lower uncertainty by avoiding gambling, while a person with an increasing MU_y is a risk loving person. A risk neutral person holds a psychology between the risk lover and risk aversive person. He is concerned only with the expected return.

Expected Value- The aggregate of the products of the dollar value associated with each outcome and its probability of occurrence is the expected value of the economic choices. It is a predictive value influencing economic decisions. This is also called the Mathematical Expectation or the EV of an economic experiment.