13. The Allais paradox involves two choices, between 1A and 1B, and between 2A a

Question

13. The Allais paradox involves two choices, between 1A and 1B, and between 2A and 2B . 1A a million dollars, guaranteed. -89% chance of one million dollars -10% chance of five million dollars -1% chance of nothing . 2A: -89% chance of nothing -11% chance of one million dollars 90% chance of nothing -10% chance of five million dollars Which of the following best describes the paradox? Choose one a. Most people choose 1B over 1A, and 2B over 2A, but the expected mone- tary value of 2A is greater than the expected monetary value of 2H. b. Most people choose 1A over 1B and 2A over 2B, but the expected mone- tary value of 2B is greater than the expected monetary value of 2A. c. Most people choose 1A over 1B and 2B over 2A, but iB and 2B have greater expected utilities. d. Most people choose 1A over 1B and 2B over 2A, but it's impossible for the expected utility to be greater for iA than for iB and for 2B than for 2A.

Explanation / Answer

option d is correct

most people choose 1A over 1B and 2B over 2A , but the expected monetary value of 2A is greater than expected monetary value of 2B

Because in 1B and 2B the chances of picking are more

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