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 0.60 probability of winning a bet on your team. However, the local bookie will accept only a $1000 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 pocket. Your payoff table is as follows: Bet $1000 -1000 Don't bet $0 $0 a) what decision does the expected value approach recommend b) what is your indifference probability for the $0 payoff? (Although this choice isn't easy, be as realistic as possible. It is required for an analysis that reflects your attitude toward risk. c) what decision would you make based on the expected utility approach? In this case are you a risk-taker or a risk avoided? d) would other individuals assess the same utility values you do? Explain. e) If your decision in part (c) was to place the bet, repeat the analysis assuming a minimum of $10,000.
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
Suppose that the point spread for a particular sporting
Bet $1000 -1000
Don't bet $0 $0
a) what decision does the
b) what is your indifference probability for the $0 payoff? (Although this choice isn't easy, be as realistic as possible. It is required for an analysis that reflects your attitude toward risk.
c) what decision would you make based on the expected utility approach? In this case are you a risk-taker or a risk avoided?
d) would other individuals assess the same utility values you do? Explain.
e) If your decision in part (c) was to place the bet, repeat the analysis assuming a minimum of $10,000.
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