Consider the setup from Question 1. Janet offers her friend Sam (who has identical preferences and initial wealth) thefollowing proposition: They buy the ticket together, and share the cost and proceeds equally.Janet's broad attitude to risk (risk averse, risk neutral, or risk loving) is independent of her wealth. She has initial wealthw and is offered the opportunity to buy a lottery ticket. If she buys it, her final wealth will be either w + 4 or w – 2, eachequally likely. She is indifferent between buying the ticket and not buying it. Consider the setup from Question 1 and 2. Sam has another idea: They buy two tickets (that have independent outcomes)and share the costs and proceeds equally.Is this better than buying no tickets?a. Yes, Sam's solution is preferable to buying no ticket.b. Yes, Sam's solution is inferior to buying no ticket.C.Both Janet and Sam would be indifferent between pooling their risk and buying no ticket.d. There is not enough information to answer this question.

Here, it is given that both, Janet and Sam have identical preferences that is they both are…

Consider the setup from Question 1 and 2. Sam has another idea: They buy two tickets (that have independent outcomes) and share the costs and proceeds equally. Is this better than buying no tickets? a. Yes, Sam's solution is preferable to buying no ticket. O b. Yes, Sam's solution is inferior to buying no ticket. C. Both Janet and Sam would be indifferent between pooling their risk and buying no ticket. O d. There is not enough information to answer this question.

Consider the setup from Question 1 and 2. Sam has another idea: They buy two tickets (that have independent outcomes) and share the costs and proceeds equally. Is this better than buying no tickets? a. Yes, Sam's solution is preferable to buying no ticket. O b. Yes, Sam's solution is inferior to buying no ticket. C. Both Janet and Sam would be indifferent between pooling their risk and buying no ticket. O d. There is not enough information to answer this question.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.7P

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Janet’s broad attitude to risk (risk averse, risk neutral, or risk loving) is independent of her wealth. She has initial wealth w and is offered the opportunity to buy a lottery ticket. If she buys it, her final wealth will be either w+4 or w−2, each equally likely. She is indifferent between buying the ticket and not buying it. Which of the following statements is true? Select one: a.Janet is risk averse. b.Janet is risk loving. c.Janet is risk neutral. d.There is not enough information to determine Janet's risk attitude
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