3 Consider the following four lotteries:

a Most people prefer L1 to L2 and L4 to L3. Explain why.
b Suppose a decision maker subscribes to the Von Neumann–Morgenstern axioms and prefers L1 to L2.
Show that he or she must also prefer L3 to L4.

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L .50 $1,000,000 $3,000,000 L .50 $0 .10 $1,000,000 L3 .90 $0 .05 $3,000,000 LA .95 $0