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Suppose that a person won the Florida lottery and was offered a choice of two prizes: (1) sure $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.

a. What is the expected dollar return on the gamble?
b. What does the person's choice of action say about whether they are a risk averter or a risk seeker?

 

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