Suppose you have $35,000 in wealth. You have the opportunity to play a game called "Big Bet/Small Bet." In this game, you first choose whether you would like to make a big bet of $15,000 of a small bet of $5,000. You then roll a fair die. If you roll a 4, 5, or 6, you win the game and earn $15,000 for the big bet or $5,000 for the small bet. If you roll a 1, 2, or 3, you lose the $15,000 for the big bet and $5,000 for the small bet game and lose Utility 55 11 11 11 11 1 ARE Yes, both are fair. BE BE 184 O Big Bet is fair, but Small Bet is not. O No, both are not fair. 11 Are the Small Bet and Big Bet considered fair bets? OSmall Bet is fair, but Big Bet is not. 20 11 TWI M C 1 35 D E 1 J 1 1 1 U 50 Income (thousands of dollars)

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Suppose you have $35,000 in wealth. You have the opportunity to play a game called "Big Bet/Small Bet." In this
game, you first choose whether you would like to make a big bet of $15,000 of a small bet of $5,000. You then roll a
fair die. If you roll a 4, 5, or 6, you win the game and earn $15,000 for the big bet or $5,000 for the small bet. If you
roll a 1, 2, or 3, you lose and lose $15,000 for the big bet and $5,000 for the small bet
the
game
Utility
U₂
U₁
BEL
0
11
LATE
EE
ARTE
Are the Small Bet and Big Bet considered fair bets?
O Big Bet is fair, but Small Bet is not.
No, both are not fair.
Yes, both are fair.
20
OSmall Bet is fair, but Big Bet is not.
G
HA
1
35
D
E
1
1
1
1
1
F
1
U
50 Income
(thousands
of dollars)
Transcribed Image Text:Suppose you have $35,000 in wealth. You have the opportunity to play a game called "Big Bet/Small Bet." In this game, you first choose whether you would like to make a big bet of $15,000 of a small bet of $5,000. You then roll a fair die. If you roll a 4, 5, or 6, you win the game and earn $15,000 for the big bet or $5,000 for the small bet. If you roll a 1, 2, or 3, you lose and lose $15,000 for the big bet and $5,000 for the small bet the game Utility U₂ U₁ BEL 0 11 LATE EE ARTE Are the Small Bet and Big Bet considered fair bets? O Big Bet is fair, but Small Bet is not. No, both are not fair. Yes, both are fair. 20 OSmall Bet is fair, but Big Bet is not. G HA 1 35 D E 1 1 1 1 1 F 1 U 50 Income (thousands of dollars)
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