Question
Consider two possible prizes: Prize A offers a 10% chance to win $300. Prize B offers $25 for sure. Given the choice between these two
Consider two possible prizes:
Prize A offers a 10% chance to win $300.
Prize B offers $25 for sure.
Given the choice between these two prizes, Roy prefers Prize B over Prize A. (He also, unsurprisingly, prefers Prize A over no prize at all.)
Now consider several other possible prizes:
Prize Y: a 5% chance to win $300
Prize Z: a 50% chance to win $25
Given his preference above, determine a possible preference ordering for Roy across all four options (A, B, Y, Z), assuming his preferences are consistent with expected utility theory. Show your work and/or explain your reasoning.
Roy's favorite prize is:
Roy's 2nd favorite prize is:
Roy's 3rd favorite prize is:
Roy's 4th favorite prize is:
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