Asked by Charles Jackson on Jun 04, 2024
Verified
Someone who values a lottery at more than the expected value is
A) a risk lover
B) risk neutral
C) risk averse
D) one who tends to play lots of lotteries
Expected Value
The calculated average of all possible values for a random variable, considering the probabilities of each outcome.
Risk Lover
An individual or entity that prefers or seeks out investment opportunities with higher risk for the potential of higher returns.
- Identify the differences between people who avoid risk, those who are indifferent to risk, and those who seek out risk.
Verified Answer
NS
Nathan SpencerJun 10, 2024
Final Answer :
A
Explanation :
A person who values a lottery at more than its expected value is someone who is willing to take a risk in the hopes of making a large gain. This is the definition of a risk lover. A risk neutral person would place no value on the lottery other than its expected value, and a risk averse person would value the lottery less than its expected value, as they are not willing to take the risk for a potentially large payoff. The answer D is not relevant to the question as it does not describe the attitude towards the lottery, but rather the behavior of playing multiple lotteries.
Learning Objectives
- Identify the differences between people who avoid risk, those who are indifferent to risk, and those who seek out risk.