Question

Scam artists sometimes “stage” accidents by purposely walking in front of slow-moving luxury cars whose drivers are presumed to carry large amounts of liability insurance. The “victim” then offers to accept a small monetary cash settlement so the driver can avoid an insurance claim, a blot on his driving record, and increased insurance premiums. Marlin has just tried to stage such a scheme by walking into a slow-moving Mercedes and faking a minor injury. Assume that the possible outcomes for Marlin are 2$500 (i.e., he is arrested and fined for his scam), $0 (the driver recognizes the scam and refuses to pay), and $100 (the driver simply pays up to get rid of Marlin). If the probabilities for these outcomes are 0.1, 0.3, and 0.6, respectively, what is Marlin’s expected monetary outcome for trying to scam the Mercedes driver?


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  • CreatedSeptember 08, 2015
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