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
Question: i) The manager of Top Rock Company is introducing a new product that will yield $200 millions in profits if the economy does not go into recession. However, if a rec

asumption and limitation of increemrntal,oppurtunity cost

Q. Explain Price elasticity and total revenue? Given the relationship between price elasticity and marginal revenue of demand in Eq. II, the decision-makers can simply know whe

principles of time perspectives

Because of the complex and dynamic nature of marketing phenomenon, demand forecasting has become a regular and significant business exercise. It is necessary for profit maximisatio

STAGFLATION The term stagflation is a recent arrival in economic literature derived from joining together the stage of stagnation and flections of inflation. The term has been

The Microeconomic objectives of government These are the policies which are concerned with the allocation and distribution of resources to maximize social welfare. 1. Allo

Features of Monoploy in Monopolistic Competition Monopolistic competition has the following features from monopoly : As the products are differentiated substitutes, each b

Consumer Equilibrium To demonstrate the consumer's equilibrium i.e. the point at which the consumer maximizes utility with a given budget, we need to combine the indifference

MONOPOLISTIC PRACTICES The following practices may be said to characterize monopolies. Exclusive dealing to supply and collective boycott Producers agree to supply onl