Question

Christina is pulled over for speeding. When the ticket arrives in the mail she sees that the fine is $610. She needs to figure out whether she should pay the fine or contest the ticket at a court hearing. If she contests the ticket, she can either go to court alone or hire a traffic lawyer for $320. If she goes to court and the citing police officer is a no-show, the judge will dismiss the citation and she doesn’t have to pay the fine. She has estimated the probability of this at 24%. If she goes to court with a lawyer, she has estimated the overall probability of winning the case at 38% (because either the officer will not show up or because her lawyer will help her win the case).

1. Draw the decision tree for this problem. You can do this by hand (and snap a photo) or use computer software. Paste the diagram here. (1 point)

2. What are the correct original and subsequent decisions based on the expected value decision rule? What is the overall expected value for this decision problem? Show your calculations of the expected value for each alternative. (1 point)

Hint: These will all be negative numbers. Remember that negative numbers get bigger the closer they are to zero.

3. Now focus on the utility of each alternative rather than the dollar amount. Assume $1 is associated with 1 utility unit but that every loss hurts twice as much as it’s dollar amount suggests (i.e. a loss of $100 is associated with -200 utility units). Further, assume that there is one additional cost of going to court – -300 utility units – because of the burden that it imposes. What is the correct decision if she is trying to maximize her utility? Show your calculations of the expected utility for each alternative. (2 points)

Hint: These will all be negative numbers. Remember that negative numbers get bigger the closer they are to zero.

4. In reality a large percentage of people who “fight” their tickets get them dismissed. For example in Washington DC in 2015, 71% of people who contested their tickets for moving violations got them dismissed. Thus, fighting tickets is probably a good strategy from a monetary value perspective, especially since tickets can usually be appealed for free. However, only a small percentage of people actually decide to do this. In DC in 2015 it was 1% (source: https://goo.gl/jbbEMa). Using a “descriptive decision-making” perspective, comment on why you think so many people opt to pay their tickets rather than contest them? Focus on two concepts from the week 5-9 materials and explain why each one is relevant in this situation. (3-5 sentences). (2 points)

Answer 1

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