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Tanya, with utility function U(x), is asked to choose from a pair of options within each of the following two opportunities: Opportunity A (choose one):
Tanya, with utility function U(x), is asked to choose from a pair of options within each of the following two opportunities: Opportunity A (choose one): 61% chance to win $520,000 OR 63% chance to win $500,000. Opportunity B (choose one): 98% chance to win $520,000 OR 100% chance to win $500,000. Within Opportunity A suppose Tanya chose the first option (61% chance to win $520,000). According to the expected utility hypothesis this implies 0.61U(520,000) > 0.63U(500,000). Within Opportunity B, suppose Tanya chose the second option (100% chance to win $500,000). According to the expected utility hypothesis this implies [students, please add the appropriate equation]. The combination of these two outcomes can be expressed as . The outcome in the previous statement is likely the result of
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