Answer to Question #306510 in Microeconomics for Hero

Question

A gamble gives 25% probability of R50, 50% probability of R100 and 25% probability of nothing. A risk neutral (U(x)=x) RDU decision maker has probability weighting function: w(p)=p^1.5. Whatprobability weight would she use for the R50 outcome?

a. ~0.25

b. ~0.125

c. ~0.30

d. ~0.5

Answer 1

0.25^1.5=0.125

Answer: 0.125