Lela must decide whether to go on a winter trip to Norway with the hope of seeing the Northern Lights. Seeing the lights would yield a utility level of 2,000, but she has only a 50% chance that they will show during the days of her trip. Making the trip without seeing the lights would yield a utility level of 100, and there is 50% chance of this happening. What is Lela's expected utility if she goes on the trip?

Question

Quizplus · Accepted Answer

The expected utility is calculated by multiplying the utility of each outcome by its probability and then summing these products. For seeing the Northern Lights: 2,000 * 0.5 = 1,000. For not seeing the Northern Lights: 100 * 0.5 = 50. Adding these together gives an expected utility of 1,050.

Lela Must Decide Whether to Go on a Winter Trip