Scenario: Mike wants to buy an ancient painting from a curator. Mike values the original painting at $50,000, while he does not have any value for a fake one. However, he cannot differentiate between the original painting and a fake painting.
-Refer to the scenario above.How much should he pay for the painting if he thinks that there is a 70 percent chance that the painting he is buying is original?
A) $50,000
B) $35,000
C) $70,000
D) $15,000

Question

Quizplus · Accepted Answer

If Mike thinks there is a 70% chance the painting is original, then there is a 30% chance it is fake. Assuming he has no value for a fake painting, the maximum amount he should be willing to pay is 70% of the value of an original painting ($50,000 x 0.70 = $35,000). Therefore, choice B is the best option.

Scenario: Mike Wants to Buy an Ancient Painting from a Curator