In a certain state lottery, a lottery ticket costs $1. In terms of the decision to...

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	600000	-1
Do Not Purchase Lottery Ticket, d₂	0	0

A realistic estimate of the chances of winning is 1 in 260,000. 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 = $
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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Expert Solution

milcah answered 2 months ago

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