Reference no: EM132207526
Question: 1. You are on the Deal or No Deal show, and you are facing three boxes. One of the three contains $1,000,000, one contains $1,000, and one contains $10. Rule of the game: If you choose to open the boxes, you can open in any order, but you can keep the amount of money contained in the last box only. Now Howie Mandel offers you $250,000 if you give up your right to open the boxes.
a) Assuming that you use expected value as your guide in life, would you choose the sure amount or the right to open the boxes? Justify your answer with calculations.
b) Assuming that your utility function is U(x) = (x)1/2 (square root of x), and that you use expected utility as your guide in life, would you choose the sure amount or the right to open the boxes?
c) Given the utility function, what is the lowest amount in exchange for which you would give up your right to open the boxes?
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