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Professor Greedy has an annual income of AUD 200,0000. If he truthfully declares his income he has to pay AUD 50,000 in tax. Instead of
Professor Greedy has an annual income of AUD 200,0000. If he truthfully declares his income he has to pay AUD 50,000 in tax. Instead of doing that, Greedy decides not to declare his income. With probability of 50% he will get away with it and will not have to pay any tax, but with 50% probability he will be caught and has to pay AUD 100,000 (i.e. the tax plus a fine). A friend has offered Greedy to bet on a coin flip (win AUD 2,000 if heads and loose AUD 2,000 if tails is the outcome). Greedy told his friend that he would never accept such a gamble regardless how much money he has. b) Given his preferences over the tax-evasion and the coin-flip gamble, can Greedy be an expected utility maximizer
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