Chapter 6, Problem 56CP

Are you risk averse? You need to choose between two alternative programs for dealing with the outbreak of a deadly disease. In program 1, 200 people are saved. In program 2, there is a 2/3 chance that no one is saved and a 1/3 chance that 600 people are saved.

1. a. Find the expected number of lives saved with each program.
2. b. Now you need to choose between program 3, in which 400 people will die, and program 4, in which there is a 1/3 chance that no one will die and a 2/3 chance that 600 people will die. Find the expected number of deaths with each program.
3. c. Explain why programs 1 and 3 are similar and why 2 and 4 are similar. (If you had to choose, would you be like most people and be risk averse in part a, choosing program 1, and risk taking in part b, choosing program 4?)