Question

If a consumer definitely prefers a payment of INR 50 for sure to a lottery which promises rewards of INR 100 or INR 0 with probabilities of 1/2 each, then we can say that the consumer is:

• A. Risk lover
• B. Risk averse
• C. Risk neutral
• D. Satisficer

Hint:

Understand the definitions of risk preferences.

Answer 1

The Correct Option is B

A risk-averse individual prefers a certain outcome (INR 50) over a risky one (the lottery). This indicates that the consumer dislikes risk and is willing to accept a lower, but certain, outcome instead of facing a risky one. Hence, the correct answer is (b).