Question

5. Individual Problems 17-5 You are offered the following gamble based on coin flips. If the first heads occurs on the first flip, you get $2. If the first heads occurs on the second flip, you get $4, and so on, so that if the first heads is on the Nth flip, you get $2N. The game continues until there is a heads. Which of the following best represents the expected value of this gamble in dollars? ∑N=1∞0 ∑N=120.5 ∑N=1∞1 ∑N=110e When offered, most people say they would pay only less than $10 to play this game. One explanation for this phenomenon is that individualsaccount for very unlikely events when making decisions.

Answer 1

You are offered the following gamble based on coin flips. If the first heads occurs on the first flip, you get $2. If the first heads occurs on the second flip, you get $4, and so on, so that if the first heads is on the Nth flip, you get $2N. The game continues until there is a heads.
Which of the following best represents the expected value of this gamble in dollars?

0
∞
π
e

When offered, most people say they would pay only less than $10 to play this game.
One possible explanation for this phenomenon is that, for most individuals, the marginal utility of each dol