Jane wants to buy a beautiful doll as a gift for her sister's birthday.She knows that the same product is offered in different shops with prices of $120, $100 and $80 with odds of 1/3 of each price.She just stopped at a shop and knows that the price is $100.If the search cost is $8 per time, what should she do?

Question

Quizplus · Accepted Answer

The expected value of searching again is:

EV(searching again) = (1/3)×($120-$8) + (1/3)×($100-$8) + (1/3)×($80-$8) = $96

Since the EV of searching again is less than the current offer of $100, it is best for Jane to accept the offer in hand (B).

Jane Wants to Buy a Beautiful Doll as a Gift