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Imagine that you collect bottles of wine as a hobby. How would you react to these situations?

a. You have just learned that one of the bottles (Wine A) that you purchased five years ago has appreciated considerably. A friend has offered to buy the bottle from you for $100. His offer is a fair price. Would you sell the bottle of wine?

b. A second bottle of wine (Wine B) is viewed by experts as being equivalent in value to Wine A. You never purchased a bottle of Wine B, but a casual acquaintance did. In conversation at a party, he offers to sell you his bottle of Wine B for $100. Would you buy it?

Many people would neither sell Wine A nor buy Wine B. Explain why this pattern of choices is inconsistent with expected utility. What other considerations might be taken into account?

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Statistics and Probability, Statistics

Category:- Statistics and Probability
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