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Consider the following gambles, represented in the format xi = (xi1, pi1; xi2, pi2): x1 = (1000, 0.75; 0, 0.25) x2 = (800, 1) x3
Consider the following gambles, represented in the format xi = (xi1, pi1; xi2, pi2): x1 = (1000, 0.75; 0, 0.25) x2 = (800, 1) x3 = (1000, 0.15; 0, 0.85) x4 = (800, 0.20; 0, 0.80) x5 = (0, 0.75; -1000, 0.25) x6 = (-200, 1) Imagine that John displays 1 2, and we know that John maximizes EU. 3.1. Imagine that we ask John to choose between x3 and x4. Will we observe 3 4 or 4 3? Explain. [5 points] 3.2. Imagine that we now give John an additional $1000. We then ask John to choose between x5 and x6. Will we observe 5 6 or 6 5? Explain.
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