Instructions summary

There are two assets in which you can invest. On the one hand, there is a bond that is always paying 3 monetary units for certain. On the other hand, there is a stock which is either paying 1 or 5 monetary units. Your task is to choose whether you want to invest into the bond or the stock.

The probability that an investment into the stock yields the high payoff (5 units), depends on the risky assets fundamental state of this asset. With an equal probability (50%/50%), the fundamental state can either be good, or bad.

Good state: If the stock is in a good state, the probability for the high payoff equals 70%. This is, with a chance of 70% you receive the payoff of 5, and with 30% you receive the payoff of 1.

Bad state: If the stock is in a bad state, the probability for the high payoff equals 30%. This is, with a chance of 30% you receive the payoff of 5, and with 70% you receive the payoff of 1.

Note: The expert's expectations correlate with the stock’s actual payoff in the exact same way as in stage 1.