Question Description
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Decision Tree Assignment |
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Play now?Play later? |
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You can become a millionaire!That’s what the junk mail said.But then there was the fine print: |
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If you send in your entry before midnight tonight, then here are your chances: |
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0.1% that you win $1,000,000 |
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75% that you win nothing |
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Otherwise, you must PAY $1,000 |
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But wait, there’s more!If you don’t win the million AND you don’t have to pay on your first attempt, |
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then you can choose to play one more time.If you choose to play again, then here are your chances: |
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2% that you win $100,000 |
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20% that you win $500 |
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Otherwise, you must PAY $2,000 |
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What is your expected outcome for attempting this venture?Solve this problem using |
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a decision tree and clearly show all calculations and the expected monetary value at each node. |
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Use maximization of expected value as your decision criterion. |
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Answer these questions: |
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1) Should you play at all? (5%)If you play, what is your expected (net) monetary value? (15%) |
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2) If you play and don’t win at all on the first try (but don’t lose money), should you try again? (5%) Why? (10%) |
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3) Clearly show the decision tree (40%) and expected net monetary value at each node (25%) |
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