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 ofwinning 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? (Disregardany commission charged by the bookie.) Remember that you must pay losses out of your own pocket. Your payoff table is as follows:State of NatureDecision AlternativeYou WinYou LoseBet$1,000-$1,000Don't bet(a) What decision does the expected value approach recommend?EV(Bet) = $320EV(Don't bet) = $0The 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(Bèt) =EU(Don't bet) =The expected utility approach recommends ---Select--Does a 0.86 indifference probability make you a risk taker or a risk avoider?O risk avoider The expected utility approach recommends Select--Does a 0.86 indifference probability make you a risk taker or a risk avoider?O risk avoiderO risk taker(c) Would other individuals assess the same utility values you do? Explain.O Yes, the indifference probability will be the same for every player, therefore every player will have the same utility.O Yes, the payoffs and probabilities of winning are the same for all players, therefore every player will have the same utility.O No, each person can choose a different indifference probability, therefore every player may not have the same utility.O Yes, every player would have the same utility values since $1,000 can purchase the same amount of goods and services for all players.O No, the payoffs and probabilities of winning are different for each player, therefore every player may not have the same utility.(d) Suppose the minimum bet was raised to $10,000, and your indifference probability for the $0 payoff is now 0.97. (Assign a utility of 10 to the payoff of$10,000 and a utility of 0 to the payoff of -$10,000.)EU(Bet) =EU(Don't bet) =The expected utility approach recommends ---Select---Does a 0.97 indifference probability make you a risk taker or a risk avoider?O risk avoiderO risk taker

Given, Win Loose Bet $1000 -$1000 Do not bet 0 0

Answered: Suppose that the point spread for a…

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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