Question: Problem 13-27 (Algorithmic) In a certain state lottery, a lottery ticket costs $1. In terms of the decision to purchase or not to purchase a

Problem 13-27 (Algorithmic)

In a certain state lottery, a lottery ticket costs $1. In terms of the decision to purchase or not to purchase a lottery ticket, suppose that the following payoff table applies:

State of Nature
Win Lose
Decision Alternatives s1 s2
Purchase Lottery Ticket, d1 350000 -1
Do Not Purchase Lottery Ticket, d2 0 0

  1. A realistic estimate of the chances of winning is 1 in 300,000. Use the expected value approach to recommend a decision. If required, round your answer to two decimal places. If the amount is zero enter 0. Recommended decision: Purchase Lottery Ticket Expected Value = $ _______
  2. If a particular decision maker assigns an indifference probability of 0.00001 to the $0 payoff. Would this individual purchase a lottery ticket? Decision: Yes, Purchase Lottery Ticket Use expected utility to justify your answer. If required, round your answer to five decimal places. Expected Utility = ______

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