Assad has an opportunity to enter a contest. If he wins the contest, the value of his increase in utility will be $6,000. If he loses the contest, the value of his decrease in utility will be -$300. His probability of winning is 4%. His probability of losing is 96%. What is Assad's expected utility if he enters the contest?

Question

Quizplus · Accepted Answer

The expected utility is calculated by multiplying the value of each outcome by its probability and then summing these products. For Assad, the expected utility of entering the contest is (0.04 * $6,000) + (0.96 * -$300) = $240 - $288 = -$48.

Assad Has an Opportunity to Enter a Contest