On many public train systems, tickets are not collected when riders get on the train. Instead, inspectors periodically go through the train and issue fines to riders who do not have valid tickets. According to an article in the Sydney Morning Herald (30 July 2007), at railway stations in Mumbai, India, there are now entrepreneurs who sell "ticket insurance." For a payment of roughly half the price of a regular train ticket these entrepreneurs guarantee that in the event that you are caught without a ticket, your fine will be paid. Assume that the regular fare for a trip is $10, the fine for riding without a ticket is $200, the probability of getting caught if traveling without a ticket is 0.02, and the going price for ticket insurance is $5. Assume also that sellers of ticket insurance always make good on their promise to pay fines. At these prices, we can predict that on any given riding occasion, when a passenger can choose between:

• Option 1: buying a ticket
• Option 2: buying insurance (and riding without a ticket)
• Option 3: taking their chances and riding without a ticket or insurance

Then:

Group of answer choices

All risk-averse persons will choose option 1 while all risk neutral persons will choose option 2.

All risk-averse persons will choose option 1 while all risk-neutral persons will choose option 3.

Some risk-averse persons will choose option 2 and some risk-neutral persons also will choose option 2.

Some risk-averse persons will choose option 2 while all risk neutral persons will choose option 3.

All risk-averse persons will choose option 1 while only some risk-neutral persons will choose option 1.