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    Expected utility approach

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    In a certain state lottery, a lottery ticket cost $6. In terms of the decision to purchase or not to purchase a lottery ticket, suppose that the following payoff table applies:

    State of nature
    Decision alternative Wins s1 Lose s2
    Purchase lottery ticket d1 250,000 -6
    Do not purchase lottery ticket d2 0 0

    1. A realistic estimate of the chances of winning are 1 in 300,000. Use the expected value approach to recommend a decision.
    2. If a particular decision maker assigns an indifference probability of 0.00004 to the $0 payoff, would this individual purchase a lottery ticket? Use the expected utility to justify your answer.

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    https://brainmass.com/business/strategy-and-business-analysis/expected-utility-approach-234806

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    In a certain state lottery, a lottery ticket cost $6. In terms of the decision to purchase or not to purchase a lottery ticket, suppose that the following payoff table applies:

    State of nature
    Decision alternative Wins s1 Lose s2
    Purchase lottery ticket d1 250,000 -6
    Do not purchase lottery ticket ...

    Solution Summary

    The solution examines the expected utility approach. A realistic estimate of the chances of winning are given.

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