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  3. asset a pays $1,500 with certainty, while asset b

Asset A pays $1,500 with certainty, while asset B pays $2,000 with probability 0.8 or $100...

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Statistics

Asset A pays $1,500 with certainty, while asset B pays $2,000with probability 0.8 or $100 with probability 0.2. If offered thechoice between assets A and B, a particular decision maker wouldchoose asset A. Asset C pays $1,500 with probability 0.25 or $100with probability 0.75, while asset D pays $2,000 with probability0.2 or $100 with probability 0.8. If offered the choice betweenassets C and D, the decision maker would choose asset D. Show thatthe decision maker's preferences violate the independenceaxiom.

PLEASE HELP SHOW WORK PLEASE!!

Answer & Explanation Solved by verified expert
3.9 Ratings (630 Votes)
First let us compute the expected choice for each assetifthen where Z 100 and p is the probabilityFor AEA 1500 1 100 0 1500EB 2000 08 100 02 1600 20 1620Hence for B A    See Answer
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