Purchase Solution

Probability: Expected Value and Decision Analysis

Not what you're looking for?

Ask Custom Question

Expected Value and Decision Analysis:

1- In a certain state lottery, a lottery ticket cost $8. 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 290,000 -8
Do not purchase lottery ticket d2 0 0

1. A realistic estimate of the chances of winning are 1 in 290,000. 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.

Attachments
Purchase this Solution
Solution Summary

The probability of expected value and decision analysis are given for a state lottery.

Solution Preview

Expected Value and Decision Analysis:

1- In a certain state lottery, a lottery ticket cost $8. 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 290,000 -8
Do not purchase lottery ticket d2 0 0

1. A realistic estimate of the chances of winning are 1 in ...

Purchase this Solution
Free BrainMass Quizzes
Terms and Definitions for Statistics

This quiz covers basic terms and definitions of statistics.

Measures of Central Tendency

Tests knowledge of the three main measures of central tendency, including some simple calculation questions.

Know Your Statistical Concepts

Each question is a choice-summary multiple choice question that presents you with a statistical concept and then 4 numbered statements. You must decide which (if any) of the numbered statements is/are true as they relate to the statistical concept.

Measures of Central Tendency

This quiz evaluates the students understanding of the measures of central tendency seen in statistics. This quiz is specifically designed to incorporate the measures of central tendency as they relate to psychological research.

View More Free Quizzes
Related BrainMass Solutions

  • Expected value

    163952 Your role is to compute the expected value for the "Reject Christ" decision and pick the "best" choice to make. The expected value concept is important and used in Decision Analysis.

  • Decision Analysis

    Develop a sensitivity analysis matrix that summarizes the expected monetary value for each possible alternative relative to the probability of location A being selected.

  • Managerial Decision Making Expected Value

    Here, different actions and their outcomes will be estimated, and expected value will be calculated identifying the payoff values.// Expected-Value Decision Rule Expected value or EV is the fundamental principle of decision analysis.

  • Decision Analysis : Benefits of a Decision Tree Plan that Displays Decision Alternatives

    Expected value is a criterion for making a decision that takes into account both the possible outcomes for each decision alternative and the probability that each outcome will occur.

  • Scenario Analysis Technique to Evaluate a Joint Venture

    The analyst can do a better job of determining the value of the investments or business ventures and the probability the expected value calculated will happen.

  • Product expected value approach-expected utility

    Using both criteria (expected value and utility approach) we are arriving at the same decision.

  • Real option for Bradford Services

    Use decision tree analysis to estimate the value of the project, including the opportunity to implement the new project at Year 3.

  • Decision Making for Risk

    ANALYSIS The Expected Value computations for each investment option is shown below Real Estate NPV Probability Expected Value High $5,000,000 0.50 $2,500,000 Medium $2,250,000 0.35 $787,500 Low

  • Monte Carlo Simulation and Sensitivity Analysis

    545857 Monte Carlo Simulation and Sensitivity Analysis A decision maker is working on a problem that requires her to study the uncertainty surrounding the payoff of an investment.

View More Related Solutions