Essentials of Business Analytics 1st Edition by Jeffrey Camm,James Cochran,Michael Fry,Jeffrey Ohlmann ,David Anderson

Exercise 6

In a certain state lottery, a lottery ticket costs $2. In terms of the decision to purchase or not to purchase a lottery ticket, suppose that the following payoff table applies:

a. A realistic estimate of the chances of winning is 1 in 250,000. Use the expected value approach to recommend a decision.
b. If a particular decision maker assigns an indifference probability of 0.000001 to the $0 payoff, would this individual purchase a lottery ticket Use expected utility to justify your answer.