Consider a consumer whose utility function for income is given by square root of x.?
This consumer is offered a choice between: (1) a certain outcome of obtaining $225 and (2) a risky gamble which generates either an outcome of x1=$100 with probability Pr(x1)=0.5, or an outcome of x2=$400 with probability Pr(x2)=0.5??. Which of the following statements is true?
A. Such a person prefers option (1) and she is risk averse.
B. She is risk averse but she still prefers option (2) since the expected value is higher.
C. Such a person is indifferent between both options so that makes her risk neutral.
D. Such a person is indifferent between the two choices and is risk averse.
E. She prefers option (2) so that makes her risk loving.