Borrow some money to make it to payday

Assignment Help Operation Management

Reference no: EM131809757

John asks his friend, Paul, to borrow some money to make it to payday. Paul would like to help John, but John is known for not paying his debts. At the same time Paul is making his decision, John is deciding whether to buy lottery tickets. He really likes the lottery. If he buys them, he will not be able to pay Paul back.

If Paul decides not to loan John the money, Paul gets 0. If John then buys lottery tickets, he gets 0. If he decides not to buy lottery tickets, he gets -1. If Paul decides to loan John the money and John plays the lottery, Paul gets -2 and John gets 8. If Paul decides to loan John the money and John does not play the lottery, Paul gets 3 and John gets 6. If this game is played just once, determine the equilibrium. What is John’s expected payoff?

Paul talks to John about making this a repetitive offer. It turns out that John has some rich relatives who might help him out regardless of what happens in the previous games. John has a 70% chance of becoming independently wealthy after each round and never returning to ask for a loan. Considering all of this new information, what is John’s decision now? What is his expected payoff?

Finally, a benevolent aunt feels sorry for her family. Any time John is denied a loan by a friend, she gives him some worth 2, bringing his payoff up to 1 if he does not play the lottery and 2 if he does. Now what is John’s decision? What is his payoff? (Note: we are still working off of the discount factor for a repetitive offer)

In which of these three scenarios is John the best off?

Reference no: EM131809757

Questions Cloud

Discuss the inventory is still on hand : The inventory originally cost $14,000. At the end of the year 80% of the inventory is still on hand

Create portfolio of local suppliers for his new line : Phillip? Witt, president of Witt Input? Devices, wishes to create a portfolio of local suppliers for his new line of keyboards.

Depreciation schedule for the preferred method : Determine which one of the following methods provides the preferred depreciation schedule: DDB or SOYD. Show the depreciation schedule for the preferred method.

Compute its ddb depreciation schedule : Compute its DDB depreciation schedule. Assume any remaining depreciation is claimed in the last year.

Borrow some money to make it to payday : John asks his friend, Paul, to borrow some money to make it to payday. Paul would like to help John, but John is known for not paying his debts.

Find a formula in each case for the probability : The ith switch in each of the following circuits is closed with probability p, and open with probability qi for each i.

Discuss what bid price should you submit on the contract : If your tax rate is 30 percent and your required return on this project is 10 percent, what bid price should you submit on the contract

Determine the best depreciation method : The company treasurer must determine the best depreciation method for office furniture that costs $50,000 and has a zero salvage value at the end of a 10-year

Compute the depreciation schedule : The plant engineer estimates the machine has a useful life of 5 years and no salvage value. Compute the depreciation schedule using:

User Account

All Pages