17. Two friends (let’s call them Rick and Ray) who were living in L.A. decided t

Question

17. Two friends (let’s call them Rick and Ray) who were living in L.A. decided to go to Las Vegas for a weekend (who can blame them!). They were short on the money (at least in terms of money for lodging) so decided to stay in an inexpensive hotel, well known for being family friendly, the Circus Circus. Both friends decided to go to the Casino at the Bellagio, and were surprised by a new game in which you had the chance to win twice your bet or lose everything, depending on a machine flipping a fair coin in the air that falls on the table, which is then called by a croupier. Amazingly enough, the two friends behave quite differently in front of the unusual game: Rick said: “there is no way I am betting a dime on this game,” while Ray said “say what? I am betting every penny I have”. How do you explain this situation? Please be as detailed as possible in explaining this with the concepts explored in class.

Explanation / Answer

The answer is Rick is risk averse and Ray is risk lover. Risk averse person prefers lower certain income than agree to a bet with higher returns whereas risk lover takes chances and loves to gamble. Can't comment upon what you were taught in class but there you would have definitely read about risk averse individuals and risk lovers. Add that material to this answer if you want to be more detailed in answer

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