Thread: Stats/Econ help -- Expected Utility Calculation
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Old October 5th, 2008, 12:28 AM
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Originally Posted by truxmonster View Post
Matthew is a contestant on the game show "Behind the Curtain." The host has given him $50. In front of Matthew are three curtains. Behind one curtain is a jar with three dimes. Behind the second curtain is a check for $30. Behind the third curtain is a check for $120. Assuming he is risk neutral and interested only in the cash value of the value, is Matthew willing to trade the $50 for a chance to pick a curtain at random and take whatever prize it conceals? Explain by writing the appropriate expected utility calculation.
Consider the expected value of the prize that can be selected from behind the curtain:

(1/3)(0.3) + (1/3)(30) + (1/3)(120) = ......

Is this greater or less than $50 .....?
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