What is expected cost if a participant is willing to accept

Reference no: EM132198802

Question: In assessing the effecitveness of a new treatment: 70% of all participants entering the study will never successfully get positive results. Among the remaining individuals who could potentially get positive results: there is a 50% probability of success on any given attempt, independent of the results of any previous attempts. Suppose that you represent an insurance company. You are concerned about the costs of the new treatment. You wish to impose a maximum on the number of attempts that you will fund for any given individual. Specifically, you would like to stop paying for treatment whenever the likelihood of failure on a given attempt exceeds 97%.

1. Show that you would be willing to fund up to a maximum of three attempts.

2. If the cost per attempt is $8,000. What is the expected cost if a participant is willing to accept up to 3 treatment attempts?

Reference no: EM132198802

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