Thread: Expected utility.

This is the subject from Hell!!! I am pretty lost and posting under my brothers account...

any help and clarity would be greatly appreciated!!!


3.

Thirty people work in your office and your Christmas tradition is to have a pool to which everyone contributes $10. On December 20, there is a drawing and the winner takes all. What is the expected utility of your participating in the office pool?

4.

If for your Christmas party, the winner is expected to buy refreshments for everyone (average cost $5 each), what is your expected utility for participating?
[Same cost, $10, same number of people participating, 30, same winner take all rule].

7.

What is the expected utility of buying a lottery ticket for $5 in a fair lottery if the prize is $1,000,000 and there are 10 million tickets sold?
Express your answer as a plus or minus dollar amount, with two decimal points. (e.g., +$3.25 or -$3.25)
8.

You have just bought a new and therefore fairly expensive car. You have to buy insurance. The insurance cost is $1000 for a year but the deductible is only $150. If we assume that the probability of your having an accident in the next year is 10% and that the average cost of an accident involving a car like yours is $5000, what is the expected utilty for you of buying insurance?
Express your answer as a dollar amount with a positive or negative sign in front (e.g. +$10 or -$12.95).

9.

You have just bought a new and therefore fairly expensive car. You have to buy insurance. The insurance cost is $1000 for a year but the deductible is only $150. If we assume that the probability of your having an accident in the next year is 10% and that the average cost of an accident involving a car like yours is $5000, what is the expected utilty for you of NOT buying insurance and driving without it?
Express your answer as a dollar amount with a positive or negative sign in front (e.g. +$10 or -$12.95).

ANY AND ALL HELP IS MUCH APPRECIATED!!!

Ummm... I hate to break this too you, but you must define a "Utility" function in order to answer these quesitons. If you are talking about "Expectation", that is the same as a utility function U(t) = t. This means that $1 when you have none is just as important to you as $1 when you already have $1,000,000.

In the first one, your expectation is -$10.00 + (1/30)*($300), or, a maybe little less confusing (29/30)*(-$10.00) + (1/30)(+$290.00). Again, though, we can't really talk about "Utility" until we know the Utility Function.

And just for the record, there are subjects worse than Statistics. Statistics is FUN!