How to satisfy the substitution axiom

Reference no: EM13179841

Jason is indifferent between $10 for sure and a lottery that pays $100 with probability 0.09 and $0 with probability 0.91. He is also indifferent between $70 for sure and a lottery that pays $100 with probability 0.80 and $0 with probability 0.20. Jason is given a choice between lottery A or B:

Z = {$100, $70, $10, $0}

pA = (0.10, 0.20, 0.70, 0)

pB = ( 0, 0.40, 0.50, 0.10)

If Jason's preferences are complete, transitive, continuous and monotone, and satisfy the substitution axiom, then will he prefer lottery A or B? Show your work and comment on Jason's risk attitudes.

Reference no: EM13179841

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