Before reading the rest of this exercise, answer the following two questions about your preferences:

a. You are given $5,000 and offered a choice between receiving an extra $2,500 with certainty or flipping a coin and getting $5,000 more if heads or $0 if tails. Which option do you prefer?

b. You are given $10,000 if you will make the following choice: return $2,500 or flip a coin and return $5,000 if heads and $0 if tails. Which option do you prefer?

Most people choose the sure $2,500 in the first case but flip the coin in the second. Explain why this behavior is not consistent. What do you conclude about how people make decisions concerning uncertain events? M