Asked by Teniqua Westry on Jun 25, 2024
Verified
Refer to Scenario 5.6. If the doctor is risk-averse, she would accept:
A) $50,000 for sure rather than take the risk of being a researcher.
B) $60,000 for sure (the minimum HMO outcome) rather than take the risk of being a researcher.
C) $95,000 for sure rather than face option 1 and option 2 in research.
D) $275,000 for sure (the average of option 1 and option 2 in research) , but not less, rather than face the risk of those two options.
E) the research position because it has the highest possible income.
Risk-averse
Describes individuals or entities that prefer to avoid risks and would opt for a sure thing over a gamble with a potentially higher payoff.
Researcher
An individual engaged in systematic investigation to establish facts or principles or to collect information on a subject.
HMO Outcome
The results or effects of health maintenance organization (HMO) policies on healthcare quality, costs, and patient satisfaction.
- Outline and explore the spectrum of risk preferences (risk-averse, risk-neutral, and risk-loving) and their influences on the decision-making process.
- Estimate the expected utility and calculate the probable income for different probabilities and outcomes.
Verified Answer
ST
Shiju T JoseJul 01, 2024
Final Answer :
C
Explanation :
Risk-averse individuals prefer a certain outcome over a gamble with an equivalent expected value. Option C offers a sure amount that is less than the expected value of the research options, which is appealing to someone who is risk-averse.
Learning Objectives
- Outline and explore the spectrum of risk preferences (risk-averse, risk-neutral, and risk-loving) and their influences on the decision-making process.
- Estimate the expected utility and calculate the probable income for different probabilities and outcomes.