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    Payoff problem/expected value decision alternatives

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    A Las Vegas roulette wheel had 38 different numerical values. If an individual bets on one number and wins, the payoff is 35 to 1.

    the pay off table for a 10 dollar bet on one number for decision alternatives of bet and do not bet is shown in this payoff table

    win loose
    bet 350 -10
    do not bet 0 0

    A)what is the recommended decision using the expected value approach?

    B) What range of utility values would a decision maker have to assign to the $0 payoff in order to have expected utility justify a decision to place the $10 bet

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    Solution Preview

    Please see the attached file.

    A Las Vegas roulette wheel had 38 different numerical values. If an individual bets on one number and wins, the payoff is 35 to 1.

    The pay off table for a 10 dollar bet on one number for decision alternatives of bet and do not bet is shown in this payoff table

    win loose
    bet 350 -10
    do not bet 0 0

    → The win and loose situations are states of nature, which are not under decision maker's control. The bet and do not bet are decision alternatives, which are under decision maker's control. In the given question there are two states of ...

    Solution Summary

    Word file contains explanation and computation of range of utility values a decision maker have to assign to the $0 payoff in order to have expected utility justify a decision to place the $10 bet.

    $2.19

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