Question

A "mathematically fair bet" is one in which a gambler bets, say, $100 for a 10 percent chance to win $1,000 ($100 = 0.10 × $1,000). Assuming diminishing marginal utility of dollars, this is not a fair bet in terms of utility because

Answer 1

Answer: the winnings are reduced

Explanation:

Given 10 percent chance to win $1,000 for $100. That is

Gain = $900

Assuming diminishing marginal utility of dollars, when the utility of the gain and the money used for bet are considered, it is discovered that the utility of the $100 used to make the bet is greater than the $900 that you might gain if you win the bet.

this is not a fair bet in terms of utility because the winnings are reduced.