Question
Sam, a poor cash-strapped MBA student, has come into possession of four tickets to the Dallas Mavericks' season finale on April 15 th against the
Sam, a poor cash-strapped MBA student, has come into possession of four tickets to the Dallas Mavericks' season finale on April 15th against the Portland Trail Blazers. Because Sam isn't a basketball fan, he has decided to sell all four tickets. He has a couple of options.
He could sell them all to Ticketmaster now for $225 per ticket, or he could wait to sell them the week of the game in the hope that the game has playoff implications and the media hype increases their value. If he waits until the playoff implications are clear, he has two additional options: (1) he can sell them to Ticketmaster; or (2) scalp them on game day. Scalping carries a special risk though; there's a 15% chance he gets caught, in which case he loses all four tickets and pays a $500 fine for scalping (it's just a single $500 fine regardless of the number of tickets).
If he waits and the game has playoff implications, an event whose chances are estimated to be 40% by sports pundits, he could sell them to Ticketmaster for $350 per ticket or scalp them for $500 per ticket (assuming he doesn't get caught). If the game has no playoff implications, the value decreases, and he could sell them to Ticketmaster for $150 per ticket or decide to scalp them for $180 per ticket (again assuming he doesn't get caught).
Assuming Sam is risk neutral, what should he do? Draw the decision tree and indicate the correct course of action at each decision node, the expected value at each chance node, and Sam's (overall) expected payoff for selling his tickets. NOTE: Assume Sam must sell all four tickets at once, i.e., as a bundle. No splitting the tickets up and selling them individually at different times and in different ways (that makes the problem much harder!).
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