Assume that point spread for the particular sporting event is 10 points and that with the spread you are convinced you would have 0.60 probability of winning bet on the team. Though, local bookie will accept only a $1000 bet. Supose that such bets are legal, would you bet on the team? Remember that you should pay losses out of own pocket. The payoff table is as follows:
State of Nature
Decision Alternatives Win s1 Loses s2
Bet $1000 -$1000
Don't Bet 0 0
i) What decision expected value approaches recommend?
ii) Find indifference probability for $0 payoff?
iii) What decision would make based on expected utility approach? In this case are you risk taker or risk avoider?
iv) Would other individuals analyze same utility values you do? Describe.
v) If the decision in part (c) was to place bet, repeat analysis assuming the mini-mum bet of $10,000.