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A Las Vegas roulette wheel has 38 different numerical values. If an individual bets on one number and wins, the payoff is 35 to 1 a. Show a payoff table for a $10 bet on one number for decision alternatives of bet and 8. do not bet. b. What is the recommended decision using the expected value approach? c. Do the Las Vegas casinos want risk-taking or risk-avoiding customers? Explain d. What range of utility values would a decision maker have to assign to the SO payoff in order to have expected utility justify a decision to place the S10 bet?

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Answer #1

a.

Decision alternatives     You Win You Lose
Bet $10 ? 35 ? $10 = $340 $10
Do not bet $0 $0

b.

??[??] = ??(??????)$340 ? ??(????????)$10

          = ((1/38) $340) – ((37/38) $10)

          = ?$0.79 < $0

Therefore, the recommended decision using the expected value approach is “do not bet “.

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