Question
Mike is in a casino and he decides to spend $100 on a slot machine just for fun. The minimum money required to join the
Mike is in a casino and he decides to spend $100 on a slot machine just for fun. The minimum money required to join the game is $100. After he deposits the money, he is allowed to pull the machine once or twice. Every time John pulls the machine, he can either win $500 or lose $50. He can get the balance out in cash either after the second pull or after the first pull if he chooses to stop. John feels that the probability of winning in each pull is about 0.15. Further, John is a risk avoider and his utility associated with having $x regarding this decision is U($x)=square root of (x/1000). What is the expected utility for playing this game? If John can decide not to play on this slot machine, should he choose to play anyway?
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