Question

In a certain state lottery, a lottery ticket costs $1. In terms of the decision to...

In a certain state lottery, a lottery ticket costs $1. In terms of the decision to purchase or not to purchase a lottery ticket, suppose that the following payoff table applies:

State of Nature
Win Lose
Decision Alternative s1 s2
Purchase Lottery Ticket, d1 550000 -1
Do Not Purchase Lottery Ticket, d2 0 0
  1. A realistic estimate of the chances of winning is 1 in 290,000. Use the expected value approach to recommend a decision. If required, round your answer to two decimal places.

    Recommended decision: Purchase Lottery Ticket

    Expected Value = $  
  2. If a particular decision maker assigns an indifference probability of 0.00001 to the $0 payoff, suppose that the following payoff table applies:
    State of Nature
    Win Lose
    Decision Alternative s1 s2
    Purchase Lottery Ticket, d1 10 0
    Do Not Purchase Lottery Ticket, d2 0.00001 0.00001

    Would this individual purchase a lottery ticket?

    Decision: Yes, Purchase Lottery Ticket

    Use expected utility to justify your answer. If required, round your answer to five decimal places.

    Expected Utility =
Math   Statistics-And-Probability   
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