Author Question: For each of the following statements, state whether the statement is true, false, or uncertain and ... (Read 58 times)

Sufayan.ah · **on:** Jul 1, 2018

For each of the following statements, state whether the statement is true, false, or uncertain and explain why.

i. A risk neutral person is indifferent to a gamble and the expected value of the gamble.
ii. A risk-averse person will never accept a gamble.
iii. A risk-loving person will accept any gamble.

Question 2

The Social Security program is like a private pension plan in that _____.

a. it is a pay-as-you-go system
b. it is voluntary
c. benefits are a function of earlier contributions
d. you have a legal right to your benefits

ilianabrrr · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

i. True, the expected utility of a gamble equals the utility of the expected value for a R.N. individual.
ii. False, a risk averse person will not accept a fair gamble (or worse) but may accept a gamble with a positive expected value.
iii. False, a risk loving individual will accept any fair gamble, but if the expected value is sufficiently negative, they will not accept the gamble.

Answer to Question 2

c