Problem: Suppose that a person won the Florida lottery and was offered a choice of two prizes: (1) $500,000 or (2) a coin-toss gamble in which he or she would get $1 million if a head were flipped and zero if a tail.
Q1. What is the expected dollar return on the gamble?
Q2. Would the person choose the sure $500,000 or the gamble?
Q3. If he or she chooses the sure $500,000, is the person a risk averter or a risk seeker?