Marsha Owns a Boat That Is Harbored on the East

question 117

Essay

Marsha owns a boat that is harbored on the east coast of the United States. Currently, there is a hurricane that is approaching her harbor. If the hurricane strikes her harbor, her wealth will be diminished by the value of her boat, as it will be destroyed. The value of her boat is $250,000. It would cost Marsha $15,000 to move the boat to a harbor out of the path of the hurricane. Marsha's utility of wealth function is Marsha's current wealth is $3 million including the value of the boat. Past evidence has influenced Marsha to believe that the hurricane will likely miss her harbor, and so she plans not to move her boat. Suppose the probability the hurricane will strike Marsha's harbor is 0.7. Calculate Marsha's expected utility given that she will not move her boat. Calculate Marsha's expected utility if she moves her boat. Which of the two options gives Marsha the highest expected utility?

---

Definitions:

Longitudinal Design

A research strategy that involves following the same group of individuals over an extended period to observe changes or developments.

Cross-Sectional Design

A research method used to examine a population at a single point in time, allowing for the comparison of different population groups at the same time.

Down Syndrome

A genetic disorder caused by the presence of all or part of a third copy of chromosome 21, leading to developmental and intellectual delays.

Chromosomes

Threadlike structures located within the nucleus of animal and plant cells, made of protein and a single molecule of DNA, carrying genetic information.