Scenario 5.6: Consider the Information in the Table Below, Describing Choices for Choices

question 27

Multiple Choice

Scenario 5.6:
Consider the information in the table below, describing choices for a new doctor. The outcomes represent different macroeconomic environments, which the individual cannot predict.

-Refer to Scenario 5.6. The expected utility of income from research is:

• A) u($275,000).
• B) u($95,000).
• C) [u($500,000) + u($50,000)]/2.
• D) .1 u($500,000) + .9 u($50,000).
• E) dependent on which outcome actually occurs.

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Definitions:

Expected Value

A statistical concept representing the average outcome one would expect to see from a probability distribution over many trials.

Exponential Distribution

A model used in statistics for describing the times between events in a process where events occur continuously and independently at a constant rate.

Proportion

A fraction or percentage that indicates the part of a whole represented by a certain count or quantity.

Student T Distribution

A probability distribution used in statistical inference for datasets with small sample sizes and unknown population standard deviations.