To ensure that you understand the earlier instructions, please answer a few questions. You will not be able to proceed to the next part unless you answer these questions correctly.
In this stage, you will be asked to make an investment decision for yourself.
You are given 1000 cents ($10) to invest. You must allocate the full 1,000 cents between two alternatives described below:
Alternative 1 – Safe Investment:
This option guarantees full repayment. Every cent you invest in Alternative 1 is guaranteed to be kept by you.
Alternative 2 – Risky Investment:
This option introduces risk and the possibility of a higher return. Any amount you invest in Alternative 2 will be subject to the following rules: one chip will be randomly drawn from a new bag that contains exactly 3 chips: 1 red chip and 2 blue chips.
If a red chip is drawn, then your risky investment will be multiplied by 2.5 and you will receive that amount – 1 in 3 chance (33%).
If a blue chip is drawn, then your risky investment will be lost entirely and you will receive nothing – 2 in 3 chance (67%).