Imagine a market for used computers. There are two types of computers: good and bad. Also imagine that there are 50% of each on the market. Buyers can imagine paying 5,000 for a good computer and 1,000 for a bad computer Sellers want at least 4000 for a good computer and 1500 for a bad computer Assume that the buyer thinks that there is a 50% probability that the computer is of poor quality. What is the expected value and price of a computer that the buyer most wants to pay?

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Risk and Uncertainty

Uncertainty refers to a situation when there is one possible outcome of a decision but where the probability of occurrence of each particular outcome is not known or cannot be estimated.