In the certain state lottery, the lottery ticket costs $2. In terms of decision to buy or not to buy the lottery ticket, assume that following payoff table applies:
State of Nature
Decision Alternatives Win s1 Loses s2
Purchase lottery ticket, d1 300,000 -2
Do not purchase lottery ticket, d2 0 0
a. The realistic estimate of chances of winning is 1 in 250,000. Use expected value approach to recommend the decision.
b. If the particular decision maker assigns the indifference probability of 0.000001 to $0 payoff, would the individual purchase a lottery ticket? Utilize expected utility to justify the answer.