Harold has visited a casino and paid an entry fee of $20,000 to play the game of cards. Below is the payoff table in terms of the decision to play or not to play the game (Note: Harold will not pay the entry fee if he does not want to play and the below payoff table includes the entry fee):
a. In his previous visits, Harold has won 1 out of every 5 games that he has played. Use the expected value approach to recommend a decision.
b. Assume that the utilities for 50,000 and -20,000 are 10 and 0, respectively. If a particular decision maker assigns an indifference probability of 0.0001 to the $0 payoff, would Harold play the game? Use expected utility to justify your answer.

Question

Harold has visited a casino and paid an entry fee of $20,000 to play the game of cards. Below is the payoff table in terms of the decision to play or not to play the game (Note: Harold will not pay the entry fee if he does not want to play and the below payoff table includes the entry fee):
  a. In his previous visits, Harold has won 1 out of every 5 games that he has played. Use the expected value approach to recommend a decision.
b. Assume that the utilities for 50,000 and -20,000 are 10 and 0, respectively. If a particular decision maker assigns an indifference probability of 0.0001 to the $0 payoff, would Harold play the game? Use expected utility to justify your answer.

Quizplus · Accepted Answer

The Answer of Harold has visited a casino and paid an entry fee of $20,000 to play the game of cards. Below is the payoff table in terms of the decision to play or not to play the game (Note: Harold will not pay the entry fee if he does not want to play and the below payoff table includes the entry fee):
  a. In his previous visits, Harold has won 1 out of every 5 games that he has played. Use the expected value approach to recommend a decision.
b. Assume that the utilities for 50,000 and -20,000 are 10 and 0, respectively. If a particular decision maker assigns an indifference probability of 0.0001 to the $0 payoff, would Harold play the game? Use expected utility to justify your answer.

Harold Has Visited a Casino and Paid an Entry Fee