Question
I am a rational and risk-averse person, and I have an option of making the following bet: I receive $600 cash, after which I roll
I am a rational and risk-averse person, and I have an option of making the following bet: I receive $600 cash, after which I roll a normal 6-sided die. Whatever I roll, i must pay $150 times the value of the roll of the die (so if make the bet and roll a "2", I get $600, then have to pay out $300, thus I win $300 in total)
What if the previous was rigged, and instead of using a normal die that has a 1-out-of-6 chance for any given roll, the probabilities of each die-roll are as given:
1. 20% 2. 10% 3. 10% 4. 20% 5. 20% 6. 30%
What is the total expected value of the rigged version of the bet to me?
A. $0 B. $30 C. $-200 D. $-30
If my goal is to maximize my personal utility, should I accept this rigged version of the game, and does my degree of risk aversion affect whether or not I should accept the bet? Does the precise level of my risk aversion matter?
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