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ave a 70% chance of getting the question correct, their expected utility from taking the gai decimal places, and do not round your answer.) ng the gamble is o the video bonus question. than the utility they receive if they do not do the video bonus Imber of people they have in the ca s get the video bonus question right increase with the numb ring their trin. If only lacquer and Kyoko had had

ave a 70% chance of getting the question correct, their expected utility from taking the gai decimal places, and do not round your answer.) ng the gamble is o the video bonus question. than the utility they receive if they do not do the video bonus Imber of people they have in the ca s get the video bonus question right increase with the numb ring their trin. If only lacquer and Kyoko had had

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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If the family chooses not to do the video bonus question, they will receive a utility of To determine whether they should attempt the video bonus question, you first have to examine the payoffs the family will receive, depending on whether they get the video bonus question correct or incorrect. Complete the following table with the total vacation budget they will have in each situation and the utilities corresponding to each outcome. Utility (Utils) Answer correctly Answer incorrectly Vacation Budget (Dollars) Because the passengers believe they have a 70% chance of getting the question correct, their expected utility from taking the gamble is utils. (Note: Enter all decimal places, and do not round your answer.) Because the expected utility from taking the gamble is Kyoko, and Musashi do the video bonus question. Scenario Suppose that the odds that passengers get the video bonus question right increase with the number of people they have in the cab and decrease with the number of strikes they received during their trip. If only Jacques and Kyoko had been in the cab, and they had received two strikes during the trip, they would have estimated their chance of getting the video bonus question right to be only 30%. than the utility they receive if they do not do the video bonus question, Jacques, Complete the first row of the following table with the guaranteed utility the passengers will receive if they walk away with their original winnings, the new expected utility from taking the gamble, and the answer to whether they should do the video bonus question in this case. 30% chance of answering correctly $300 in winnings during the cab ride $300 initial vacation budget Guaranteed Utility Expected Utility Do the Video Bonus? (Utils) (Utils) (Yes or No) Now suppose that the chance that Jacques, Kyoko, and Musashi get the video bonus question right is again 70%, but that instead of winning $100 during their ride, the family won $300. Taking this new information into account, complete the second row of the previous table. Again, suppose that the chance the passengers get the video bonus question right is 70%, and the total winnings from the cab ride returns to $100. However, suppose the initial vacation budget Jacques, Kyoko, and Musashi started with was only $300 instead of $400. Based on this information, complete the final row of the previous table.
Transcribed Image Text:If the family chooses not to do the video bonus question, they will receive a utility of To determine whether they should attempt the video bonus question, you first have to examine the payoffs the family will receive, depending on whether they get the video bonus question correct or incorrect. Complete the following table with the total vacation budget they will have in each situation and the utilities corresponding to each outcome. Utility (Utils) Answer correctly Answer incorrectly Vacation Budget (Dollars) Because the passengers believe they have a 70% chance of getting the question correct, their expected utility from taking the gamble is utils. (Note: Enter all decimal places, and do not round your answer.) Because the expected utility from taking the gamble is Kyoko, and Musashi do the video bonus question. Scenario Suppose that the odds that passengers get the video bonus question right increase with the number of people they have in the cab and decrease with the number of strikes they received during their trip. If only Jacques and Kyoko had been in the cab, and they had received two strikes during the trip, they would have estimated their chance of getting the video bonus question right to be only 30%. than the utility they receive if they do not do the video bonus question, Jacques, Complete the first row of the following table with the guaranteed utility the passengers will receive if they walk away with their original winnings, the new expected utility from taking the gamble, and the answer to whether they should do the video bonus question in this case. 30% chance of answering correctly $300 in winnings during the cab ride $300 initial vacation budget Guaranteed Utility Expected Utility Do the Video Bonus? (Utils) (Utils) (Yes or No) Now suppose that the chance that Jacques, Kyoko, and Musashi get the video bonus question right is again 70%, but that instead of winning $100 during their ride, the family won $300. Taking this new information into account, complete the second row of the previous table. Again, suppose that the chance the passengers get the video bonus question right is 70%, and the total winnings from the cab ride returns to $100. However, suppose the initial vacation budget Jacques, Kyoko, and Musashi started with was only $300 instead of $400. Based on this information, complete the final row of the previous table.
While spending the weekend in New York City, Jacques, Kyoko, and their son, Musashi, are lucky enough to hail the Cash Cab for their taxi ride. During their ride, they win $100 for correct answers and receive only one strike for a wrong answer, so at the end of the ride they are eligible for the video bonus question. Their vacation budget before entering the cab was $400, and based on their understanding of the type of bonus question they'll be asked, they believe they have a 70% chance of getting the question right. As explained in the article, if they answer the video bonus question correctly, they will double their winnings, but if they miss the video bonus question, they will lose all of what they had previously won. Alternatively, they can choose not to play for the bonus and walk away with their winnings from the cab ride. The following graph shows the cab riders' utility as a function of their total vacation budget. For simplicity, assume that all three passengers have the same preferences, and they only care about their joint budget since they are a family. Refer to the graph to answer the questions that follow. UTILITY (Utils) 10 9 8 7 6 5 3 2 1 0 0 ++++ u(x) + 100 200 300 400 500 600 700 800 900 1000 VACATION BUDGET (Dollars) (?) +
Transcribed Image Text:While spending the weekend in New York City, Jacques, Kyoko, and their son, Musashi, are lucky enough to hail the Cash Cab for their taxi ride. During their ride, they win $100 for correct answers and receive only one strike for a wrong answer, so at the end of the ride they are eligible for the video bonus question. Their vacation budget before entering the cab was $400, and based on their understanding of the type of bonus question they'll be asked, they believe they have a 70% chance of getting the question right. As explained in the article, if they answer the video bonus question correctly, they will double their winnings, but if they miss the video bonus question, they will lose all of what they had previously won. Alternatively, they can choose not to play for the bonus and walk away with their winnings from the cab ride. The following graph shows the cab riders' utility as a function of their total vacation budget. For simplicity, assume that all three passengers have the same preferences, and they only care about their joint budget since they are a family. Refer to the graph to answer the questions that follow. UTILITY (Utils) 10 9 8 7 6 5 3 2 1 0 0 ++++ u(x) + 100 200 300 400 500 600 700 800 900 1000 VACATION BUDGET (Dollars) (?) +
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