Let's say you finally got some money to buy a decent car. You have two alternatives: alternative U corresponds to buying a 10-old Corolla and alternative N corresponds to buying a brand new Corolla. Each alternative has different types of costs involved (the initial cost of the car and future maintenance costs).

For option U, there is a 80% probability that on top of the cost of $10,000 to buy the car we will have a $2000 cost for major work on the car in the future. There is also a probability of 15% for the future costs to be as high as $3000 (for a total cost of $13,000). Finally, the more unlucky are subject to the probability of 5% that future costs be as high as $5000 (for a total cost of $15,000)

For option N, there's a pretty high probability (90%) that there are no major costs in maintaining the car in the future and you are subject to just the cost of buying the car ($20,000). There is some chance (say 5%), though, that you might need a new transmission or other major work (say, involving $1000 in costs). There's a smaller probability (3%) of some more serious work being necessary (say something around $2000). And, for the really unlucky, a 2% chance one might need some serious work done (costing something like $3000).

Which one of the two choices would one rationally recommend and why?

Answer rating: 100% (QA)

ANSWER To determine which option is more rational we can calculate the e... View the full answer