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Indifferent between the two choices and is risk averse

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Reference no: EM131557681

Consider a consumer whose utility function for income is given by square root of x.?

This consumer is offered a choice between: (1) a certain outcome of obtaining $225 and (2) a risky gamble which generates either an outcome of x1=$100 with probability Pr(x1)=0.5, or an outcome of x2=$400 with probability Pr(x2)=0.5??. Which of the following statements is true?

A. Such a person prefers option (1) and she is risk averse.

B. She is risk averse but she still prefers option (2) since the expected value is higher.

C. Such a person is indifferent between both options so that makes her risk neutral.

D. Such a person is indifferent between the two choices and is risk averse.

E. She prefers option (2) so that makes her risk loving.

Reference no: EM131557681

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