A friend offers you a chance to play a game in which there are only two outcomes, each with equal probability. If you get the "good" outcome, you win $80. But if you get the bad outcome, you only win $20. What price to play would make this a fair game (fair bet)?

A friend offers you a chance to play a game in which there are only two outcomes, each with equal probability. If you get the "good" outcome, you win $80. But if you get the bad outcome, you only win $20. What price to play would make this a fair game (fair bet)?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter18: Auctions

Section: Chapter Questions

Problem 18.1IP

See similar textbooks

Related questions

Q: PATTS is deciding which of the two investments to take. Option A, total costs = $75,000,000 and the…

A: let's solve this with the helo of the Benefit-Cost ratio. Assumption Here we assume that bother the…

Q: The deciding shot in a soccer game comes down to a penalty shot. If the goal-keeper jumps in one…

A: Probability refers to the measure of the likelihood of an event occurring. It is expressed as a…

Q: In evaluating the sensitivity of an alternative to its first cost, Its AW was calculated for changes…

A: The time value of money refers to the concept that a sum of money is valued more now than the same…

Q: Players 1 and 2 are leaving the house and need to decide whether or not to bring an umbrella. They…

A: Game theory is a mathematical framework used to study decision-making and strategic interactions…

Q: Consider a game where there is a $2,520 prize if a player correctly guesses the outcome of a fair…

A: The objective of this question is to find out the maximum amount that Cindy would be willing to pay…

Q: You ask someone about their preferences over the following pairs of lotteries: Lottery A Lottery B…

A: Expected utility theory is the sum of the utilities weighted y the probability of happening. The…

Q: 9. You have a chance to play a coin flip game where if the coin comes up heads you get $5,000; but…

A: As a risk-averse person, you would be willing to give up some expected value in order to avoid the…

Q: Analyze the following game where Player 1 plays X with probability p and Player 2 plays A with…

A: The pay-off matrix for the two players are given as follows.ABX3,85,7Z6,112,12

Q: You play a game in which 40% of the time you win $3 and 40% of the time you lose $5 and 20% of the…

A: Expected value = - $0.6

Q: Emma and Mia are invited to two events A and B. They want to go to both events but are not on…

A: Given information 2 players: Emma and Mila 2 strategy : A and B when the go for same event get -8…

Q: Write down the extensive form of the game below. For P1, strategies you see below are not the names…

A: Given, Three Players : Player 1, Player 2 and Player 3 Player 1 has four strategies : AA, AB, BA,…

Q: In which of the following situations would the supplier have the greatest power to hurt a business…

A: The supplier's initiative to show his sensitivity to the needs of the client marks the beginning of…

Q: The above table shows the payoffs that either Darrin or Rob receive depending on whether they choose…

A: Nash equilibrium is a best strategy chosen by players that gives no incentive to players to deviate…

Q: Roger and Rafael play a game with the following rules. Roger is given $250 to divide between himself…

A: Given, Two Players- Roger and Rafael Roger is given $250 to divide between himself and Rafael…

Q: Assume that in 2015, the following prevails in the Republic of Nurd: Government spending (G) = $0…

A: Y is given as $200 Thus, Yd will be: Yd=Y-TYd=200-0Yd=200 (Since taxes is 0) Now, consumption and…

Q: You see an advertisement for a used car. The owner has not set a price but asks for people to make…

A: The true value of the car is likely to be around $1000 to $9000. The average of the true value is…

Q: You are trying to decide between rescuing a puppy or an older dog. You decide to try to assign some…

A: Utility when the dog chews furniture = 0.1Utility when dog goes on hike = 0.8 Expected Utility =…

Q: Ann and Stella want to watch a movie together this weekend. There are 8 movies playing in theatres…

A: The objective of the question is to find out the total number of pure strategies that Stella has. A…

Q: What type of risk behavior does the person exhibit who is willing to bet $60 on a game where 20% of…

A: please find the answer below.

Q: Explain the Stag Hunt Game as an example of a coordination problem?

A: The analysis of mathematical models of strategic actions among rational actors is what's known as…

Q: 38. Consider the following game. There are ten churches in town: nine are Catholic and one is…

A: As bartleby guidelines only answer Q38. Answer: Explanation: A focal point is a point that…

Q: Question 13 Rhodri has a lottery ticket which will pay £80 with probability 0.5 and zero otherwise.…

A: Risk premium : Risk premium is the amount that a person is willing to pay to avoid the risk.

Q: Suppose you have $35,000 in wealth. You have the opportunity to play a game called "Big Bet/Small…

A: A fair bet is a bet(gamble) which when played has an expected Wealth equals to Wealth without the…

Q: Extra Expense coverage is included in which of the following forms? 1. Condominium Association…

A: the coverage that covers the non-ordinary expenses of the company, is known as extra coverage. This…

Q: In the final round of a TV game show, contestants have a chance to increase their current winnings…

A: There is a half-half probability of a contestant guessing the answer right and increasing their…

Q: In the final round of a TV game show, contestants have a chance to increase their current winnings…

A: Expected value is the sumproduct of probabilities and the payoff values, positive or negative.…

Q: Suppose you were playing the Split or Steal game for a jackpot of $100,000. Which would you choose:…

A: The strategies and payoffs in a game are essentially important as they account for several…

Q: 3. Suppose we play the following game. I give you $100 for your initial bankroll. At each time n,…

A: Expected profit represents the average profit that can be anticipated from a particular situation or…

Q: 10. We consider the IS model where investment is given by = ā¡ - b(R-7). An increase in the…

A: The investment function is the relationship between investments and the rate of interest. Rates of…

Q: The effects of a combined policy of fiscal expansion and monetary contraction will result in: A…

A: The monetary policy is the policy of the central bank regarding the money supply. The tools used…

Question

What price to play would make this a fair game (fair bet)? Carefully follow all mathematical instructions in your answer.

Expert Solution

Step 1

A game is said to be fair when the value of a game is zero, it means there is neither gain of loss for a player who plays the game.

So, the expected value (after considering the cost) of a fair game is zero.

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

9. You have a chance to play a coin flip game where if the coin comes up heads you get $5,000; but lose $1,000 if it comes up tails. If you are risk averse (A>0), how much would you need to be paid to walk away and i not play the game? Explain.
You ask someone about their preferences over the following pairs of lotteries: Lottery A Lottery B Payoff Probability Payoff Probability $200 25% $200 5% $100 45% $100 90% 30% $0 5% Lottery C Lottery D Payoff Probability Payoff Probability $200 20% $200 0% $100 0% $100 45% $0 80% $0 55% The individual says they prefer lotter A over lottery B, and lottery D over lottery C. Is this person using expected utility theory to evaluate these lotteries? How can you know for certain?
What type of risk behavior does the person exhibit who is willing to bet $60 on a game where 20% of the time the bet returns $100, and 80% of the time returns $50? Is this a fair bet? Explain.
You see an advertisement for a used car. The owner has not set a price but asks for people to make him an offer. You inspect the car and believe that the true value is equally likely to be anywhere in the range of $1,000 to $9,000 (so your calculation of the average of this value is $5,000). The current owner knows the exact true value, and he will for sure accept your offer if it is higher than the true value (but not if it is lower than that value). If your offer is accepted and you get the car, then you will find out the true value. But you know in advance that your amazing car repair skills can increase the value of the car by 25% of whatever its true value is. What is your expected profit if you offer $5,000? Round your answer to the nearest dollar (e.g. 500). If you expect to make a loss, add a minus sign (e.g. -500, please do not include space between minus sign and the number if the answer is negative). Note:- Do not provide handwritten solution. Maintain accuracy and quality…
Suppose you were playing the Split or Steal game for a jackpot of $100,000. Which would you choose: Split or Steal? Explain why
For the following questions consider this setting. The deciding shot in a soccer game comes down to a penalty shot. If the goal-keeper jumps in one corner and the striker shots the ball in the other, then it is a goal. If the goalie jumps left and the striker shoots left, then it is a goal with probability 1/3. If the goalie jumps right and the striker shots right, it is goal with probability 2/3. Say the goalie's strategy is to jump left with probability 1 and the striker shoots left with probability 0.5, then the probability of a goal is (round to two digits) If the striker shoots in either corner with probability 0.5 and the goalie likewise shoots in either corner with probability 0.5, then the probability of a goal is (round to 2 digits)
In game theory, what does the term "payoff" refer to? a) The amount of money each player has at the beginning of the game. b) The final outcome of the game. c) The utility or benefit that a player receives based on the outcome of the game. d) The number of strategies available to each player.
Think of an example of a decision problem or a game theory problem. Submit the source of the story. You can take it from a newspaper, from the Internet, magazine, book. Simplify the problem and represent it using the concepts of game theory or decision theory. Solve it. Compare your results with the real-life results. In case the results do not coincide, explain why. Which is the element that the theory does not reflect. Real life source is needed with a link to the source.
Emma and Mia are invited to two events A and B. They want to go to both events but are not on speaking terms. Going to event A results in a payoff of 5 while going to B results in a payoff of 4. When they go to the same event, they each get a payoff of -8. 6. Write the payoff table for this game. 7. Find the maximin solution. (Show the steps leading to the solution.) 8. Find the Nash Equilibrium. (Show the steps leading to the NE.)
Last answer was incorrect.
Suppose you have $35,000 in wealth. You have the opportunity to play a game called "Big Bet/Small Bet." In this game, you first choose whether you would like to make a big bet of $15,000 of a small bet of $5,000. You then roll a fair die. If you roll a 4, 5, or 6, you win the game and earn $15,000 for the big bet or $5,000 for the small bet. If you roll a 1, 2, or 3, you lose and lose $15,000 for the big bet and $5,000 for the small bet the game Utility U₂ U₁ BEL 0 11 LATE EE ARTE Are the Small Bet and Big Bet considered fair bets? O Big Bet is fair, but Small Bet is not. No, both are not fair. Yes, both are fair. 20 OSmall Bet is fair, but Big Bet is not. G HA 1 35 D E 1 1 1 1 1 F 1 U 50 Income (thousands of dollars)
In the final round of a TV game show, contestants have a chance to increase their current winnings of$1 million to $2 million. If they are wrong, their prize is decreased to $500,000. A contestant thinks his guess will be right 50% of the time. Should he play? What is the lowest probability of a correct guess that would make playing profitable?