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    Probability Calculations: Bob's Umbrella

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    According to Bob, the payoffs of the several outcomes are as follows:

    a. If it is sunny and he is not carrying and umbrella, 10

    b. If it is sunny and he is carrying an umbrella, 8

    c. If it is rainy and he is not carrying an umbrella, 2

    d. If it is rainy and he is carrying an umbrella, 6

    Draw the game matrix of this one-person game (vs. Nature). What should the probability of rain (P) be for Bob to take an umbrella with him?

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    Solution Preview

    Payoff matrix: Bob vs. Nature
    (Numbers show Bob's payoff) Nature's strategy
    Sunny Rain
    Bob's strategy Umbrella 8 6
    No umbrella 10 2

    Let Pr = the probability of ...

    Solution Summary

    This solution shows how to use game theory to determine whether Bob should take his umbrella with him. Detailed calculations and a complete payoff matrix are given.