You play a game that has the following payoffs: 

35% probability of winning $1,000

35% probability of losing $1,500

30% probability of winning $550

 

Use the information above to answer the following questions:

a) What is the expected value of playing the game? 

b) Would a risk neutral person play this game? Why or why not? 

c) What level of risk tolerance (e.g. risk seeking, risk averse, risk neutral) must a person have to play this game? 

d) How much in dollars, would a risk-averse and a risk neutral person need to be paid to play the game. Explain. 

e) Which party has a positive risk premium for this game - the game's sponsor or the game's player? Explain.