Question: Consider a scenario where an individual faces a choice between a good life choice and an ungood life choice. Both option result in a risky

Consider a scenario where an individual faces a choice between a “good” life choice and an “ungood” life choice. Both option result in a risky health situation, although the risk is conditional on the choice made. There is also a guaranteed positive benefit ($U) from making the ungood life choice. The tables below depict odds and costs associated with each choice:

Good:

Probability

Cost

Healthy

0.99

0

Sick

0.01

-1000

Ungood:

Probability

Cost

Healthy

0.8

0

Sick

0.2

-1000

Given these situations, how much must you value the guaranteed positive benefit ($U) to rationally choose the Ungood choice?

Step by Step Solution

3.31 Rating (142 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock

To determine how much the guaranteed positive benefit U must be valued to rationally choose the Ungo... View full answer

blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!