A company has a choice of four oil fields to buy. Field one has a 25% chance of

Question

A company has a choice of four oil fields to buy. Field one has a 25% chance of having 10 million dollars worth of oil, field two has a 33% chance of having 9 million dollars worth of oil, field three has a 50% chance of having 3 million dollars worth of oil, and field four has a 80% chance of having 2 million dollars worth of oil. Based on the field that yields the highest expected value, which field should you buy? Hint: If the math happens to say two or more fields are equally valid, just explain that you will need to decide between these two (or more) and why that is the case.

Explanation / Answer

expected value for each field =probability * amount of oil worth in the field

FOr field 1 = 0.25*10 = 2.5million

FIeld 2 = 0.33*9 = 2.97million

FIeld 3 = 0.5 * 3= 1.5 milion

Field 4 = 0.8*2 = 1.6 million

Field 2 must be selected since it has the highest expected value

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