1. Successful business majors have an average salary of $200 000 per year, but o

Question

1.      Successful business majors have an average salary of $200 000 per year, but only 10% of business majors are successful. Unsuccessful business majors have an average salary of $50 000. Successful philosophy majors have an average salary of $75 000, and 90% of philosophy majors are successful. Unsuccessful philosophy majors have an average salary of $25 000. (We assume that you assign utilities using dollars.)          

(a) Calculate the expected value of majoring in business.

(b) Calculate the expected value of majoring in philosophy.   

If all you care about is money, then what       should your major be?

Explanation / Answer

The definition of expected value is: the sum of all possible values for a random variable, each value multiplied by its probability of occurrence.

a> the expected value of majoring in business

percentage of successful business majors = 10 %

so the usuccessful business majors = 90%

hence Expected value = [200000*10/100 + 50000*90/100] = $ 65000

b> the expected value of majoring in philosophy

percentage of successful philosophy majors = 90%

and the unseccessful>

hence expected value = 75000*90/100 + 25000*10/100 = $ 70000

so if we just care about the money then our major should be in Philosophy

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