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Consider three gambles X, Y, and Z for which the probability distributions of the gains are as follows:
Pr(X = 5) = Pr(X = 25) = 1/2,
Pr(Y = 10) = Pr(Y = 20) = 1/2,
Pr(Z = 15) = 1.
Suppose that a person’s utility function has the form U(x) = X2 for x >0.Which of the three gambles would she prefer? |
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