Goa University 2009 Post Graduate Diploma Management Candidates who aspire to get admission in the Institute have to sit for the XLRI Admissions Test (XAT) conducted by XLRI, Jamshedpur. - Question Pa

percent chance to lose $200 (otherwise nothing) and the option of losing $100 for sure, most
people prefer to take an even chance at losing $200 or nothing over a sure $100 loss. This is
because diminishing sensitivity applies to negative as well as to positive outcomes: the impact of
an initial $100 loss is greater than that of the next $100. This outcomes in a convex function for
losses and a preference for risky prospects over sure results of equal expected value, called risk
seeking. With the exception of prospects that involve very small probabilities, risk aversion is
generally observed in options involving gains, whereas risk seeking tends to hold in options
involving losses.
Based on above passage, analyse the decision situations faced by 3 persons: Babu, Babitha
and Bablu.
86. Suppose instant and further utility of every unit of gain is identical for Babu. Babu has decided to
play as many times as possible, before he dies. He expected to live for a different 50 years. A
game does not last more than ten seconds. Babu is confused which theory to trust for making
decision and seeks help of a renowned decision making consultant: Roy Associates. What
should be Roy Associates
advice to Babu?
A. Babu can decide on the basis of Expected Value hypothesis.
B. Babu should decide on the basis of Expected Utility hypothesis.
C. "Mr. Babu, I
m redundant".
D. A and B
E. A, B and C
87. Babitha played a game wherein she had 3 choices with subsequent probalilities: 0.4, 0.5 and
0.8. The gains from 3 results are likely to be $100, $80 and $50. An expert has pointed
out that Babitha is a risk taking person. According to expected utility hypothesis, which choice
is Babitha most likely to favour?
A. First
B. Second
C. Third
D. Babitha would be indifferent to all 3 actions.
E. None of the above.
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88. Continuing with previous question, suppose Babitha can only play 1 more game, which
theory would help in arriving at better decision?
A. Expected Value.
B. Expected Utility.
C. Both theories will provide identical outcomes.
D. None of the two.
E. Data is insufficient to ans the ques..
89. Bablu had 4 choices with probability of 0.1, 0.25, 0.5 and 1. The gains associated with every
choices are: $1000, $400, $200 and $100 respectively. Bablu chose the 1st choice. As per

Earning:   Approval pending.