Suppose Jack and Kate are at the town fair and are choosing which game to play. The first game has a bag with four marbles in it-1 red marble and 3 blue ones. The player draws one marble from the bag; if it is red, they win $20 and if it is blue, they win $1. The second game has a bag with 10 marbles in it-1 red, 4 blue, and 5 green. The player draws one marble from the bag; if it is red, they win $20; if it is blue, they win $5; and if it is green, they win $1. Both games cost $5 to play. Kate is considering whether to play the second game. If Kate only cares about the expected value of the outcome and does not care about risk, she should:
A. compare the cost of playing the game with the value of her time.
B. play if the cost of playing the game is greater than the expected value of the payoff.
C. not play since she never wins anything.
D. play if the cost of playing the game is less than the expected value of the payoff.
Answer: D
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Answer the following statements true (T) or false (F)
1. The transactions demand for money will decrease when income decreases, but it is not much affected by interest rates. 2. Holding money as an asset presents a risk of capital loss. 3. There is an asset demand for money because households and business firms use money as a store of value. 4. A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy. 5. If nominal GDP is $2,000 billion and the amount of money demanded for transactions purposes is $500 billion, then on average each dollar will be spent about four times a year.
Today the primary organization that countries use to negotiate trade issues is
a. the World Trade Organization. b. the General Agreement on Tariffs and Trade. c. the United Nations. d. the European Union.