Expected utility, Managerial Economics

(Only for extra credit) Consider Freddy on a rainy Thursday afternoon after losing in his favorite video game. His friend Tommy comes over to cheer him up and offers him the following choice:

Lottery A: £10000 for sure (probability 100%)

  • Lottery B: £10000 with prob. 89%, £0 with prob. 1%, £50000 with prob. 10% Consider the same Freddy on a rainy Thursday afternoon after losing in his favorite video game. His other friend Carl comes over to cheer him up and Carl offers the following  choice for Freddy
  • Lottery C: £0 with prob. 89%, £10000 with prob. 11%
  • Lottery D: £0 with prob. 90%, £50000 with prob. 10%

To our surprise, in the ?rst case Freddy chooses A and in the second case Freddy chooses D. When you put these choices together can you conclude that Freddy is not maximizing his Expected Utility? If yes, why? If no, why not?

Posted Date: 3/9/2013 5:38:19 AM | Location : United States







Related Discussions:- Expected utility, Assignment Help, Ask Question on Expected utility, Get Answer, Expert's Help, Expected utility Discussions

Write discussion on Expected utility
Your posts are moderated
Related Questions
find out the characterstics of national stock exchange

Unit Elasticity of Supply Supply is said to be of unit elasticity if changes in price bring about changes in quantity supplied in the same proportion.  Thus, when price rises,

Gains From International Trade The gains from International trade are to make the participating countries better of than they would have otherwise been.   This will be the res

Q. Explain about Smooth Convex Isoquant? Smooth Convex Isoquant: This kind of isoquant presumes continuous substitutability of capital and labour over a certain range, beyond

"Inflation is not possible under the gold standard." Is this declaration true, false, or uncertain? Describe your answer

Using Factor Incomes for Calculating National Income     A second method is to sum up all the incomes to individuals in the form of wages, rents, interests and profits t


Disposable Income This is the income which households actually have available to spend or to save.  To calculate disposal income, which is indicated by Ya, the statistician mu

Factors influencing the supply of a commodity a)         Own Price of the commodity There is a direct relationship between quantity supplied and the price so that the hig

Currency Swaps If the currency of one country is not convertible, the central banks o f the two countries can exchange their currencies, and the country with the non-convertib