Posted: March 20th, 2017
1.A realistic estimate of the chances of winning are 1 in 300,000. Use the expected value approach to recommend a decision.
In a certain state lottery, a lottery ticket cost . In terms of the decision to purchase or not to purchase a lottery ticket, suppose that the following payoff table applies:
|
State of nature |
||
| Decision alternative |
Wins s1 |
Lose s2 |
| Purchase lottery ticket d1 |
250,000 |
-6 |
| Do not purchase lottery ticket d2 |
- A realistic estimate of the chances of winning are 1 in 300,000. Use the expected value approach to recommend a decision.
- If a particular decision maker assigns an indifference probability of 0,00004 to the $0 payoff, would this individual purchase a lottery ticket? Use the expected utility to justify your answer.
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