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Suppose Margaret behaves according to Expected Utility theory. That is, when faced with the gamble Win $x with probability p & win $y with probability
Suppose Margaret behaves according to Expected Utility theory. That is, when faced with the gamble Win $x with probability p \& win $y with probability q, she assigns a value pu(W+x)+q.u(W+y) to that gamble. Assume u(500)=0& existing wealth w=500. Margaret prefers $3000 for sure to the gamble ($4000,0.8;$0,0.2). Predict which one she will choose when she is offered the following 2 options: ($4000,0.2;$0,0.8)& ($3000,0.25;$0,0.75)
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