Solution :
I have a lottery ticket that will pay off $ 10 with a 45% chance and a friend of mine has a chance of 20% by paying off $ 25.
It is based on Double risk dilemma.
Individual --- trade ticket (-1) ----24 (win(25) (0.20))
----- -1 (lose ) (0.80)
----- keep trade -------10 (win 10) (0.45)
----- 0 (lose) (0.55)
Next, solve the decision tree using expected monetary value.
EVM (keep ticket) = 0.45 (10) + 0.55 (0) = $ 4.50
EVM (trade ticket) = 0.20 (24) + 0.80 (-1) = $ 4
Therefore, we keep the ticket and do not trade.
