Question: Problem 13-27 (Algorithmic) In a certain state lottery, a lottery ticket costs $3. In terms of the decision to purchase or not to purchase a

  1. Problem 13-27 (Algorithmic)

    In a certain state lottery, a lottery ticket costs $3. 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 450000 -3
    Do Not Purchase Lottery Ticket, d2 0 0

    1. A realistic estimate of the chances of winning is 1 in 200,000. 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
      • Do Not 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
      • No, Do Not Purchase Lottery Ticket
      Use expected utility to justify your answer. If required, round your answer to five decimal places. Expected Utility = The input in the box below will not be graded, but may be reviewed and considered by your instructor

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