If she makes decisions by looking for the option with the

Question

Expected Value (Note: there is a powerpoint presentation that should help you with this.)

1. Jordan has to choose between two options: $375 for certain or a lottery that pays $1000 with probability 2/5 and 0 with probability 3/5. If she makes decisions by looking for the option with the highest expected payoff, which option should she choose?
2. Brandy Wells, hospital administrator for Carillion Hospital, is trying to determine whether to build a large wing onto the existing hospital, a small wing, or no wing at all. If the population of Roanoke continues to grow, a large wing could return $160,000 to the hospital each year. If the small wing were built, it would return $75,000 to the hospital each year if the population continues to grow. If no wing is built there will be no change in revenue (right?).  If the population of Roanoke remains the same, the hospital would encounter a loss of $55,000 each year if the large wing were built. Furthermore, a loss of $20,000 each year would be realized if the small wing were constructed and the population remains the same. If there is a 25% chance of continued population growth and Brandy makes decisions by picking the largest expected value, should Brandy recommend building the wing (don't forget the "no wing' option)?