In a certain state lottery, a lottery ticket costs $2. In terms of the decision to purchase
Question:
In a certain state lottery, a lottery ticket costs $2. In terms of the decision to purchase or not to purchase a lottery ticket, suppose that the following payoff table applies:
a. A realistic estimate of the chances of winning is 1 in 250,000. Use the expected value approach to recommend a decision.
b. If a particular decision maker assigns an indifference probability of 0.000001 to the $0 payoff, would this individual purchase a lottery ticket? Use expected utility to justify youranswer.
Transcribed Image Text:
State of Nature Win s, 300,000 Decision Alternatives Loses s2 Purchase lottery ticket, di Do not purchase lottery ticket, d 2
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a P Win 1250000 P Lose 249999250000 EV d 1 1250000300000 2499992...View the full answer
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Related Book For
Quantitative Methods for Business
ISBN: 978-0324651751
11th Edition
Authors: David Anderson, Dennis Sweeney, Thomas Williams, Jeffrey cam
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