Exam 14: Managerial Decision-Making Under Uncertainty

Bob invests $75 in an investment that has a 50% chance of being worth $100 and a 50% chance of being worth $0. From this information we can conclude that Bob is

The gambler's fallacy is

Which of the following sets of outcomes is exhaustive?

Rahul has a concave utility function. Therefore, if there are two choices he will pick the ________ if ________ expected value.

If a person is entertained by gambling, then

A lottery game pays $500 with .001 probability and $0 otherwise. The variance of the payout is

According to ________, people are often risk averse when it comes to gains and risk preferring when it comes to losses.

Framing often causes people to

If a person is risk averse, then she has negative marginal utility of wealth.

If your risk of losing your house to catastrophe is 25%, how much would fair insurance cost if your home were worth $1,000,000?

From the expected value of a game, we

Variance is a measure of ________ and the lower the variance, ________.

What type of risk behavior does the person exhibit who is willing to pay $5 for the chance to bet $60 on a game where 20% of the time the bet returns $100, and 80% of the time returns $50? Explain.

If outcomes are ________, exactly one of the outcomes will occur and the probabilities add up to ________.

-The above figure shows Bob's utility function. He currently has $100 of wealth, but there is a 50% chance that it could all be stolen. Bob is risk averse because

For a risk-neutral person, the expected utility associated with various levels of wealth

-The above figure shows Bob's utility function. He currently has $100 of wealth, but there is a 50% chance that it could all be stolen. What is the most Bob would pay for insurance that would replace his $100 should it be stolen?

Prospect theory can explain why

On any given day, a salesman can earn $0 with a 20% probability, $100 with a 40% probability, or $300 with a 20% probability. His expected earnings equal

Probability