Risk Neutrality as a Consequence of Constant Marginal Utility

An individual who is indifferent to risk is evaluating several financial options. Which of the following statements accurately describes their likely choice?

Investment Decision for a Risk-Neutral Investor

A person who is indifferent to risk would strictly prefer a guaranteed payment of $50 over a lottery ticket that offers a 25% chance of winning $200 and a 75% chance of winning nothing.

Explaining Indifference to a Gamble

An individual is indifferent between a certain payment and a gamble if the certain payment is equal to the gamble's average expected outcome. Match each gamble on the left with the certain payment on the right that would make this individual indifferent.

Analyzing a Risk-Neutral Decision

An individual who is indifferent to risk would be equally satisfied with receiving a guaranteed payment of $____ and a lottery ticket that offers a 20% chance of winning $500 and an 80% chance of winning nothing.

An individual is indifferent to risk when making financial decisions. They are presented with several investment options, each with different potential outcomes and probabilities. Arrange the following options in order from most preferred to least preferred for this individual.

Evaluating Financial Advice

An individual is offered a choice between two options: Option A is a guaranteed payment of $500. Option B is a lottery ticket with a 50% chance of winning $1,000 and a 50% chance of winning $0. The individual states that they are equally happy with either Option A or Option B. Based on this information, how would you describe this individual's attitude toward risk?