Suppose that the point spread for a particular sporting event is 10 points and that with this spread you are convinced you would have a 0.66 probability of winning a bet on your team. However, the local bookie will accept only a $1,000 bet. Assuming that such bets are legal, would you bet on your team? (Disregard any commission charged by the bookie.) Remember that you must pay losses out of your own pocket. Your payoff table is as follows: State of Nature Decision Alternative You Win You Lose Bet $1,000 -$1,000 Don't bet (a) What decision does the expected value approach recommend? EV(Bet) = $ 320 EV(Don't bet) = $0 The expected value approach recommends placing the bet (b) Suppose you've chosen an indifference probability of 0.86 for the $0 payoff? What decision would you make based on the expected utility approach? (Assign a utility of 10 to the payoff of $1,000 and a utility of 0 to the payoff of -$1,000.) EU(Bet) = EU(Don't bet) = The expected utility approach recommends --Select--- a086 indiff prohability make vou risk avoider?
Suppose that the point spread for a particular sporting event is 10 points and that with this spread you are convinced you would have a 0.66 probability of winning a bet on your team. However, the local bookie will accept only a $1,000 bet. Assuming that such bets are legal, would you bet on your team? (Disregard any commission charged by the bookie.) Remember that you must pay losses out of your own pocket. Your payoff table is as follows: State of Nature Decision Alternative You Win You Lose Bet $1,000 -$1,000 Don't bet (a) What decision does the expected value approach recommend? EV(Bet) = $ 320 EV(Don't bet) = $0 The expected value approach recommends placing the bet (b) Suppose you've chosen an indifference probability of 0.86 for the $0 payoff? What decision would you make based on the expected utility approach? (Assign a utility of 10 to the payoff of $1,000 and a utility of 0 to the payoff of -$1,000.) EU(Bet) = EU(Don't bet) = The expected utility approach recommends --Select--- a086 indiff prohability make vou risk avoider?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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