Understanding of decisions under uncertainty.
Answer the following questions about your preferences:
1) You receive $5,000 and are offered a choice between receiving an extra $2,500 with certainty or flipping a coin and getting $5,000 more if heads or $0 if tails. Which option do you prefer? Why?
2) You receive $10,000 conditional on making the following choice: Return $2,500 or flip a coin and return $5,000 if heads and $0 if tails. Which option do you prefer? Why?
3) Most people choose the certain $2,500 in the first case but flip the coin in the second. Explain why this behavior is not consistent. What do you conclude about how people make decisions concerning uncertain events?
You receive $10,000 conditional on making the following choice: Return $2,500 or flip a coin and return $5,000 if heads and $0 if tails. Which option do you prefer? Why?
