Assume that odds of a new computer requiring any type of service in the first two years are less than 1 in 10,000,and the average cost of any computer service calls is only $120.However,Karen pays $300 for a 2-year service contract on her new computer.She explains that her peace of mind is well worth the cost of the contract.In this case,Karen's decision to purchase the service agreement appears to be based primarily on
A) expected value.
B) subjective utility.
C) subjective probability.
D) noncompensatory factors.

Question

Quizplus · Accepted Answer

Karen's decision is based on subjective utility, as she believes that the peace of mind she gets from having the service contract is worth more than the cost of the contract itself. The odds of needing service may be low, but her personal valuation of avoiding potential hassle and inconvenience is higher.

Assume That Odds of a New Computer Requiring Any Type