Mel is thinking of going on a cruise.Mel values a cruise in nice weather at $2,000 and values a cruise in bad weather at $50.According to a very reliable source,the probability of nice weather is 60% and the probability of bad weather is 40%.Trip insurance is sometimes available.If purchased,it allows travelers to delay the cruise until the weather is nice.
A gamble that offers a 1% chance of winning $699.93 and a 99% chance of losing $7.07 would be classified as a(n)

Question

Quizplus · Accepted Answer

The expected value of the cruise without trip insurance is:
(0.6 x $2,000) + (0.4 x $50) = $1,210
The expected value of the cruise with trip insurance is:
(0.6 x $2,000) + (0.4 x $0) = $1,200
Since $1,200 is less than $1,210, it is not worth purchasing trip insurance. 
As for the gamble, the expected value is:
(0.01 x $699.93) + (0.99 x -$7.07) = $6.93
Since the expected value is negative, this is an unfair gamble. Therefore, the best choice is to not take the gamble.

Mel Is Thinking of Going on a Cruise