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What should be your response to the company

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Question: Eudaemonic Pie, Inc. has just come out with Model 11 of their roulette-predicting computer. They are now able to tune their machine so that its predictions are as accurate as one wants them to be. The accuracy of the Model II is controlled by setting a parameter p which ranges in the interval [0,1]. The accuracies as a function of p are represented in the following chart.

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Suppose that you are risk neutral and the company offers the use of their Model II machine to you for one bet for a price of $5 + 10p, for any p you choose in [0,1]. What should be your response to the company?

a. "Thanks, I'll buy it with p = 1, and place a bet."

b. "Thanks, I'll buy it with p = 0, and place a bet."

c. "No thanks; although using your computer at the price you quote for some p would be to my advantage if I were to place a bet, I'm still better off not betting at all."

d. "No thanks; using your computer at the price you quote for any p would not be to my advantage if were to place a bet. I choose not to bet at all."

Reference no: EM131754975

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