Question 1:

You own a lottery ticket, which has a 1 percent chance (0.01) of winning $1,000.

A. Someone has offered you 12 dollars to buy this ticket and you refused, what does that indicate in terms of your risk preference (i.e. risk averse, risk neutral or risk loving)? Explain (simple calculations will be needed).

B. Afterwards, your friend Jennifer commented: You should have accepted that offer. I would sell the ticket for 9 dollars! What does that comment indicate in terms of Jennifers risk preference? Explain (simple calculations will be needed).