Question

In this discussion you are asked to identify and describe a situation or scenario in which probabilities are used to help make decisions.

Answer 1

You are thinking of selling your car. You contacted a nearby used car dealership and they have offered you $8,000 for your car. Your friend told you of another dealership which would $10,000 for your car if it's resold within a week and $7,000 if it takes more than a well to resell. Previous sales records shows that they are able to resell similar cars within a week 40% of the time. Now you need to make a decision on picking the dealership.

Probability can be used to find out the expected value from each dealership to make the decision.

Expected value from nearby dealership = 8,000x1 = 80,000

Expected value from the dealership your friend recommended = 10,000x0.4 + 7,000x(1-0.4)

= $8,200

So, you should sell it through the dealership your friend recommended as it has higher expected returns.

This is an example of a situation in which you use probability to help make decisions.