Question
A. Find the value for p that makes you indifferent between Lottery 1 Win $1,000 with probability p Win $0 with probability 1 - p
A. Find the value for p that makes you indifferent between
Lottery 1 Win $1,000 with probability p
Win $0 with probability 1 - p
and
Lottery 2 Win $400 for sure
B. Now find the q that makes you indifferent between
Lottery 3 Win $400 with probability 0.50
Win $0 with probability 0.50
and
Lottery 4 Win $1,000 with probability q
Win $0 with probability 1 - q
C.According to your assessment in part a, U($400) = p. In part b, U($400) = 2q. Explain why this is the case.
D. To be consistent, your assessments should be such that p = 2q. Were your assessments consistent? Would you change them? Which assessment do you feel most confident about? Why?
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