Suppose Dean Has $500 and There Are Two Companies He

question 16

Multiple Choice

Suppose Dean has $500 and there are two companies he could invest X dollars in: Dog Gone Salon,which has a payoff of 2X with 50% probability and $0 with 50% probability and Pretty Kitty Grooming,which has a payoff of 4X with 25% probability and $0 with 75% probability.Dean's expected payoff from investing in Pretty Kitty Grooming only is:

• A) $500.
• B) $2,000.
• C) $1,000.
• D) $1,500.

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Definitions:

Performance Problems

Issues or challenges that hinder an individual's or a group's ability to achieve expected results or standards.

Rules of Thumb

Simple, heuristic principles or guidelines that provide practical advice for making quick, approximate decisions or solving problems.

Uncertainty

The condition of being unsure about something or lacking complete information or knowledge about outcomes, often leading to hesitation or caution in decision-making.

Representativeness Heuristic

A cognitive shortcut in which individuals judge the probability of an event based on how closely it resembles a typical case, often leading to biases in decision-making.