In Order to Illustrate the Basic Economic and Psychological Dynamics

Multiple Choice

In order to illustrate the basic economic and psychological dynamics involved in purchasing life insurance,one can create a very simple game with a sack,one black marble,and three white marbles.In this game,the four marbles are placed in the sack,and the player must pay a "premium" of $5 for each draw he makes from the sack.The previously-drawn marbles are not returned to the sack so,if he keeps playing,the player is guaranteed to win the $12 award eventually (but at what cost?!) .Use a simulation to predict the average cost to win the $12 assuming the player continues playing until he gets the black marble.Use 30 simulation runs,letting a random number give the number of draws to obtain the black marble on a particular run.

A) About $20.50
B) About $12.50
C) About $5.00
D) About $17.00
E) About $15.50