Suppose that you are given the following two alternatives:
Alternative 1: Receive $200 with certainty.
Alternative 2: Receive $1,000 with probability p or lose $250 with probability 1 2 p.
a) At what value of p would you be indifferent between these two alternatives?
b) Given your response to part a, would you be classified as risk averse, risk neutral, or risk seeking?
c) Suppose that alternative 2 changed so that you would receive $1,000 with probability p or lose $0 with probability (1 2 p). At what value of p would you now be indifferent between these alternatives?
d) Given your response to part c, would you be classified as risk averse, risk neutral, or risk seeking?