Consider the following lotteries:
A: $490 p = 1.0 B: $2000 p = .25
$0 p = .75
C: $490 p = 0.2 D: $2000 p = .05
$0 p = 0.8 $0 p = .95
a) Suppose B is preferred to A. Is it possible for the chooser to be risk-averse?
b) Demonstrate that D is preferred to C based on the expected utility criterion.