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 one-third of finding each price.She just stopped at a shop and knows that the price is $100.Suppose that there is a search cost of $5 for each search.Should she search one more time?

Question

Quizplus · Accepted Answer

The expected value of searching one more time is (1/3) * (120 - 100 - 5) + (1/3) * (100 - 100 - 5) + (1/3) * (80 - 100 - 5) = -5. Since the expected value is negative, she should not search one more time.

Jane Wants to Buy a Beautiful Doll as a Gift