Question
1) In order to use the expected value/utility model at all, we need to know the value and the probability of every outcome. If we
1) In order to use the expected value/utility model at all, we need to know the value and the probability of every outcome. If we don't know even one of these, there is no way we can make the model do work.
a. True
b. False
2) Suppose you wonder whether to place a bet of $100 on your favourite team winning tonight. If they do win, you will end up with $500 (including the $100 you wagered); if they lose you will end up with nothing.
Which of the following inequalities can help you figure out how likely victory would have to be to make placing the bet have positive expected value?
a. 0 > ($500 x p) + ($0 x 1-p)
b. 0 < ($500 x p) + ($0 x 1-p) - $100
c. 0 < ($500 x p) + ($0 x 1-p)
d. 0 > ($500 x p) + ($0 x 1-p) - $100
3) Suppose you wonder whether to place a bet of $100 on your favourite team winning tonight. If they do win, you will end up with $500 (including the $100 you wagered); if they lose you will end up with nothing.
How likely would victory have to be to make placing the bet have positive expected value?
a. larger than 20%
b. 20%
c. larger than 50%
d. 50%
4) Suppose I offer you the following deal: First you give me $20, then I roll a six-sided dice and if the result is 1, 2, or 3, I will give you the smallest bill I have in my wallet. If it comes up 4, 5, or 6, I just walk away.
Which of the following inequalities can help you figure out what bill I would have to have in my wallet to make this deal have positive expected value for you?
a. $20 < (0.5 x $0) + (0.5 x B)
b. $0 > (0.5 x $0) + (0.5 x B)
c. $0 < (0.5 x $0) + (0.5 x B)
d. $20 > (0.5 x $0) + (0.5 x B)
5) Which of the following isnotby itself a good reason to buy insurance for an electronic gadget that you absolutely need for your daily life.
(assume that all statements are true)
a. I am much more likely than most people to break this thing. And so for me buying insurance maximizes expected value.
b. I cannot afford to buy a new one if it breaks.
c. If it breaks the insurance company will pay for a new one.
d. I am the kind of person who will just never have peace of mind without insurance. So I take the financial hit.
6) Which of the following is usually the bestreason to do something that doesn't maximize expected value?
a. I'm only in this situation once.
b. The worst case scenario, though unlikely, would ruin my life.
c. I have a hunch that this time the unlikely event will happen.
d. I don't feel like doing the math.
7) Whenever it is possible to maximize expected utility, one should always do so.
a. True
b. False
8) Which of the following is usually the bestreason to do something that doesn't maximize expected utility?
a. It's illegal.
b. No risk, no fun.
c. I don't feel like doing the math.
9) Imagine alotterywith 400 tickets. There are equal chances (100 tickets each) of winning zero, $10, $50, and $100. The tickets are being sold for $50 What is the expected value of buying a ticket? ____________
10) Suppose you are rolling a six-sided dice and tossing a coin. What is the probability that the coin toss results in "heads" and the dice lands on 3?
a. 1/12
b. 1/2
c. 1/6
d. 2/3
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