Question

Refer to the scenarios in Table 16.1 on page 347. Suppose someone stands to gain $ 100,000 in a lawsuit, but there is a 5% chance that something will go wrong and they will get nothing. They are offered a settlement of $ 90,000 if they are willing to drop the lawsuit.
a. Using the definition of “expected value” from Chapter 14, what is the expected value for the amount gained under each decision?
b. Using the material in this chapter, explain whether they are likely to accept the settlement. c. Now suppose that instead of a single individual, a company encounters lawsuits of this sort quite frequently. Explain why the decision of the company might be different from the decision of the single individual. Use the concept of expected value in your explanation.


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  • CreatedOctober 22, 2015
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