statz ch 5

What are the two key properties of a discrete probability distribution?

0≤P (X = x) ≤1 and ∑P (X = xi ) = 1

How would you characterize a consumer who is risk loving?

A consumer who may accept a risky prospect even if the expected gain is negative.

A consumer who is risk neutral is best characterized as ______________________________________________________.

a consumer who completely ignores risk and makes his or her decisions based solely on expected values

A consumer who is risk averse is best characterized as _____________________________________________________.

a consumer who demands a positive expected gain as compensation for taking risk

We can think of the expected value of a random variable X as _________________________________________________________.

the long-run average of the random variable values generated over infinitely many independent repetitions

The expected value of a random variable X can be referred to or denoted as ___________.

µ E(X) The population mean