1) Considerthefollowingchoice.Yourfriendwillgiveyouafree$5bill,nostringsattached.
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1)
Consider the following choice. Your friend will give you a free $5 bill, no strings attached.
Or your friend will allow you to flip a coin, heads you win $10, tails you win nothing. Do
you want the $5, or do you want to flip the coin? What does Expected Value theory tell you
that you should do? Does this accurately represent your feeling about the decision?
2)
Consider the same choice as in Question 1, but this time you can win $12 if the coin comes
up heads (tails you still win nothing). Do you still prefer the sure $5? Does this violate
Expected Value? Does the concept of utility help you to explain your choice, if you prefer
the $5?
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