Refer to Table 17.2. Sue earns $40,000 annually. She has the opportunity to bet her entire salary on the upcoming super bowl. If Sue takes the bet, she will pick the Patriots. She believes that the Patriots have a 50-50 chance of winning the game. If the Patriots win, Sue will double her money ($80,000) but if they lose she loses her entire salary ($0) . Sue's utility if she does not take the bet is and her expected utility from the bet is .

A) 40; 80
B) 40; 40
C) 40; 0
D) 80; 20

Question

Refer to Table 17.2. Sue earns $40,000 annually. She has the opportunity to bet her entire salary on the upcoming super bowl. If Sue takes the bet, she will pick the Patriots. She believes that the Patriots have a 50-50 chance of winning the game. If the Patriots win, Sue will double her money ($80,000) but if they lose she loses her entire salary ($0) . Sue's utility if she does not take the bet is ________ and her expected utility from the bet is ________.

A) 40; 80
B) 40; 40
C) 40; 0
D) 80; 20

Chris Giner · Accepted Answer

Final Answer : B, Explanation :  Sue's utility if she does not take the bet is 40, as indicated by her current income of $40,000. The expected utility from the bet is calculated as the average of the utilities for winning ($80,000 income, 80 utility) and losing ($0 income, 0 utility), which is (80 + 0) / 2 = 40.

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