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Misty Inc. launches a new range of perfumes for men and women. The probability of high consumer demand for the product is 0.6 and low consumer demand is 0.4. The probability of a favorable survey response given high consumer demand is 0.9 and the probability of a favorable survey response given low consumer demand is 0.2.
-Greg is indifferent between receiving $2,000, and taking a chance at $2,500 with probability 0.7 and losing $1200 with probability 0.5. What is the expected value of this gamble?
A) $ 1,150
B) $ 1,800
C) $ 1,460
D) $ 2,045

Question

Quizplus · Accepted Answer

The expected value of the gamble is (0.7 * $2,500) + (0.3 * -$1,200) = $1,150.

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