Question

A parent has two children, A and B. The parent has in hand only one gift. He is indifferent between giving the gift to either child but prefers to toss a fair coin to determine which child obtains the gift over giving it to either of the children. Explain why the parent’s preferences are not consistent with expected utility.

Answer 1

The term "Expected Utility", helps in making rational decisions when one is not sure of the results or outcome

In particular case the parent's choice of gifting his children A or B are inconsistent because of the higher expected utility between the two. As both will love to have the gift but only one will get it by any chance.

The parent thus, wanting to be fair and unbiased for his children A and B, decides to toss the coin to select one of the kid between the two for the gift. As the parent is indifferent of giving the gift to either of his children. The process of tossing the coin will help him to select an alternative of chosing a child to give the gift or to eliminate a child from gifting.