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Consider two gambles: Gamble A: (50,0.5; -50,.5) Gamble B: (75,0.6; x,0.4) a. Derive x such that a risk-neutral individual is indifferent between the two gambles,
Consider two gambles: Gamble A: (50,0.5; -50,.5) Gamble B: (75,0.6; x,0.4) a. Derive x such that a risk-neutral individual is indifferent between the two gambles, assuming that she is loss-neutral. Explain. b. Consider a new gamble, C: (75,0.6; x+10,0.4), where x comes from Question 2a. Which gamble between A and C does a risk-neutral but loss-averse individual prefer? Explain. Consider two gambles: Gamble A: (50,0.5; -50,.5) Gamble B: (75,0.6; x,0.4) a. Derive x such that a risk-neutral individual is indifferent between the two gambles, assuming that she is loss-neutral. Explain. b. Consider a new gamble, C: (75,0.6; x+10,0.4), where x comes from Question 2a. Which gamble between A and C does a risk-neutral but loss-averse individual prefer? Explain
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