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
factors affecting demand forecasting

Menu Costs   Why do firms not change their prices very  frequently? Obviously, the costs of changing prices at  frequent intervals and in small amounts must be more  than the b

Factor combination in the long run In the long run it is possible to vary all factors of production. The firm is therefore restricted in its activities by the law of diminish

What is Demand theory: Demand theory relates to the study of consumer behaviour. It addresses questions like what incites a consumer to buy a particular product, why do consume

What are the significant tools of the perfect competition and the supply curve? Perfect Competition and the Supply Curve: a. In Perfect competition the characteristics of a

PROPORTIONAL TAX Is where whatever the size of income, the same rate or same percentage is charged.  Examples are commodity taxes like customs, excise duties and sales tax.

Q. Show Normal profit equilibrium? Normal Profits: With the condition of  MC = MR and MC cuts the MR from below, if E is the point of stable equilibrium, output of firm is OM

The demand curve for the product of a monopolist is a straight line such that quantity just falls to zero at a price of Rs 20 per unit and that the maximum quantity (at zero price)


Pragmatic Managerial economics  Managerial economics is pragmatic. In pure micro-economic theory, analysis is performed, based on certain exceptions, which are far from reality