Bret purchased a new smartphone for $1,100 and is considering the two-year accident protection for $180. Based on an industry blog, accidental damage with these laptops have an 80% chance of needing a glass replacement ($150) and 20% chance of internal damage, which would be a complete loss based on the value of a new replacement. Based on his community of friends, only 1 out of 15 had an accident with their phones within two years of purchase. Should he purchase the two-year protection?

Question

Quizplus · Accepted Answer

The probability of an accident is 1/15. The expected cost of an accident is 0.8 * $150 + 0.2 * $1,100 = $320. The expected loss is (1/15) * $320 = $21.33, which is less than the $180 protection cost.

Bret Purchased a New Smartphone for $1,100 and Is Considering