Rosa played poker and lost $1000. At the same time, she won $1000 from a scratcher ticket. Assuming that Rosa is loss averse, which of the following is likely true?

(A) Rosa is upset about the loss even though she was compensated by an equal win.

(B) Rosa is happy about the win even though she lost an equal amount.

(C) Rosa is indifferent because she neither won nor lost money in the end.

(D) none of the above

Question

Business

Boone

16 January, 16:37

Rosa played poker and lost $1000. At the same time, she won $1000 from a scratcher ticket. Assuming that Rosa is loss averse, which of the following is likely true?

(A) Rosa is upset about the loss even though she was compensated by an equal win.

(B) Rosa is happy about the win even though she lost an equal amount.

(C) Rosa is indifferent because she neither won nor lost money in the end.

(D) none of the above

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Answers (1)

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Abbey Acosta · Answer 1

(B) Rosa is happy about the win even though she lost an equal amount.

Explanation:

A risk averse person is one that values protection of capital over gains. He believes that it is better to make small gains and preserve the capital, than to make big gains with the possibility of losing capital.

Risk averse people favour low risk investment where returns are not spectacular and there is a near zero risk of losing capital.

In this case Rosa will be happy that she preserved her capital of $1,000.