Speeding in the town of Chanceville traditionally results in a $300 fine. The judge at the traffic court, however, decides to change the policy. People found guilty of speeding have the choice of paying the $300 fine or spinning a wheel. There is an 80 percent chance that the needle on the wheel will land on a $400 fine and a 20 percent chance that the needle will land on "No Fine." The city leaders of Chanceville probably will _____ this new policy because _____.

Question

Quizplus · Accepted Answer

The city leaders of Chanceville will most likely support this new policy because it will result in an increase in revenue. The majority of people are risk-averse and will choose to pay the average fine of $320 ($300 fine plus the 80 percent chance of a $400 fine) rather than take a 20 percent chance of no fine at all. This means that the city will receive an average fine of $320, which is $20 higher than the traditional fine of $300. Therefore, the new policy will result in an increase in revenue for the city.

Speeding in the Town of Chanceville Traditionally Results in a $300