Question at position 2 Section 1: Suppose the owner is risk neutral. Given the expected monetary value of expanding the restaurant, would the owner choose to expand? NoYes(We do not have enough information to predict what the owner would do)单项选择题
A
No
B
Yes
C
(We do not have enough information to predict what the owner would do)

Question

Question at position 2 Section 1: Suppose the owner is risk neutral. Given the expected monetary value of expanding the restaurant, would the owner choose to expand? NoYes(We do not have enough information to predict what the owner would do)单项选择题

A

No

B

Yes

C

(We do not have enough information to predict what the owner would do)

BlackTom AI · Accepted Answer

Question restatement: The owner faces a decision about expanding the restaurant, given that the owner is risk neutral and the expected monetary value (EMV) of expanding is specified. What would the owner choose to do? Options: No; Yes; (We do not have enough information to predict what the owner would do).

Option 1: No. This would be the preferred choice only if the EMV of expanding were negative. Since the scenario states we are considering the EMV of expanding, a negative EMV would lead to choosing not to expand. However, the information provided (that we have an EMV for expanding) implies we are evaluating whether expanding has positive or negative value, not that expansion is automatically rejected. Therefore, saying No without analyzing EMV is unless EMV is proven negative, so this option is not generally correct here.

Option 2: Yes. Under risk neutrality, the decision criterion is to maximize expected monetary value. If the EMV of expanding is positive, a risk-neutral owner would expand, because the expected payoff from expanding exceeds the status quo. This is the core principle: risk neutrality focuses on EMV alone, ignoring variance, so a positive EMV drives expansion.

Option 3: (We do not have enough information to predict what the owner would do). This choice would be correct only if the EMV were not provided or is zero or indeterminate. Since the prompt specifies the EMV of expanding, we are equipped to use that information to decide. Therefore, claiming insufficient information contradicts the setup of the problem, making this option inconsistent with the given data.

Why the incorrect options fail, in more detail:
- No: The argument for saying No rests on a negative EMV or on a non-monetary constraint. Neither is stated; we are told to use the EMV, and if EMV is positive, No is incorrect.
- (We do not have enough information...): This misreads the scenario. With a known EMV, a risk-neutral decision rule is to expand when EMV > 0 and not expand when EMV < 0. Since the EMV is provided, we do have enough information to predict the action under risk neutrality.

Synthesis: Because the owner is risk neutral, the decision hinges solely on EMV. A positive EMV for expanding yields expansion, i.e., choosing Yes. The other options are inconsistent with a risk-neutral decision rule given a specified EMV, so they do not align with the standard interpretation of the scenario.