a. Bob has decided to skip his 1B co-op term and instead go gambling in
Vegas. He has to decide between the
following casino games. Use Expected
Value theory to decide which game Bob should play. (6 marks)
|
Game |
Potential
Winnings |
Probability of
Winning |
|
Black Jack |
150, 000 |
.0001 |
|
Roulette |
97, 000 |
.0002 |
|
Craps |
300, 000 |
.00005 |
|
Poker |
250, 000 |
.00007 |
|
Slot machines |
50, 000 |
.0002 |
b. Bob has decided that he would like to buy a house in Waterloo to live in. The house he has picked out costs $150, 000. In weighting his options, Bob considers winning $150, 000 or more to be twice as important as winning anything less, since this way he could buy the house. Use this information in a Subjective Expected Utility Model to decide which casino game Bob should play now. (2 marks)