-Gunnar can work as a campus security officer at a guaranteed salary of $20,000 per year or as a real estate agent. If Gunnar works as a real estate agent, there is a 50 percent chance that he will earn $10,000 per year and a 50 percent chance that he will earn $30,000 per year. Based on the table above, Gunnar's expected utility if he works as a real estate agent is
A) 170.
B) 85.
C) 20.
D) 90.

Question

-Gunnar can work as a campus security officer at a guaranteed salary of $20,000 per year or as a real estate agent. If Gunnar works as a real estate agent, there is a 50 percent chance that he will earn $10,000 per year and a 50 percent chance that he will earn $30,000 per year. Based on the table above, Gunnar's expected utility if he works as a real estate agent is
A) 170. 
B) 85. 
C) 20. 
D) 90.

Quizplus · Accepted Answer

The expected utility is calculated by taking the probability-weighted average of the utilities of each outcome. If the utility of earning $10,000 is 70 and the utility of earning $30,000 is 100, then the expected utility is (0.5 * 70) + (0.5 * 100) = 35 + 50 = 85.

-Gunnar Can Work as a Campus Security Officer at a Guaranteed