Nick Is Considering Buying a New Bicycle

question 20

Multiple Choice

Nick is considering buying a new bicycle. Here are his options: Bike A - costs $100. It has a 60% chance of breaking down in the next year.
Bike B - costs $200. It has a 20% chance of breaking down in the next year.
Bike C - costs $400. It has a 15% chance of breaking down in the next year.
Which bike should Nick purchase based on expected utility theory of repair costs?

• A) Bike A
• B) Bike B
• C) Bike C
• D) Either bike A or C
• E) We can't possibly answer the question with the information provided.

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