Imagine I offer you the following gamble. I shuffle an ordinary deck of cards (52 cards of 4 suits; no “jokers”). I draw one card from the deck

Imagine I offer you the following gamble. I shuffle an ordinary deck of cards (52 cards of 4 suits; no “jokers”). I draw one card from the deck. If I draw a Heart, you win $8. If I draw any other suit, you lose (pay me) $2

A. What’s the probability that you’d win the bet (i.e., I draw a Heart)? What’s the probability that you’d lose the bet?

B.What’s the expected value of the gamble? (For this problem, you don’t need to worry about the utility of different amounts of money; just compute the answer as a dollar value).

C.Should you play the gamble? Why or why not? Base your answer on the expected values of the two alternatives, “Play” and “Don’t Play.”

D.Draw a “decision tree” diagram of the above decision (the decision of whether or not to play my gamble). Be sure to label the branches and endpoints of your diagram (you can use the figures in the lecture and in chapter 2 of the text as examples). Your decision tree will have two initial branches (“Play” and “Don’t Play”).

Solutions

Expert Solution

Please consider third sheet fist, then 2nd and then last sheet

orchestra answered 1 year ago

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