The rst investment yields net wealth

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Reference no: EM131095095

An individual has to choose between two possible investments. The rst investment yields a net wealth of $100 with probability 0.5, and a net wealth of $0 with probability 0.5. The second investment yields a net wealth of $40 with probability 1. Which of the following statements is true?

(a) Economic rationality implies that the individual will choose the rst investment;

(b) A risk averse individual will always choose the second investment;

(c) A risk averse individual will always choose the rst investment;

(d) The optimal choice by a risk averse individual cannot be determined without knowing the precise von Neumann Morgenstern utility function of the individual.

Reference no: EM131095095

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