Suppose that a car rental agency offers insurance for a week that will cost $10 per day. A minor fender bender will cost $1,500, while a major accident might cost $15,000. Without the insurance, you would be personally liable for any damages. What should you do? Clearly, there are two decision alternatives: take the insurance, or do not take the insurance. THe uncertain consequences or events that might occur, are that you would not be involved in an accident that you would be involved in a fender bender, or that you would be involved in a major accident. Develop a payoff table for this situation. What decision should you make using each strategy?
Average payoff strategy:
Aggressive strategy:
Conservative strategy:
Opportunity loss strategy: