Hugh is considering transitioning to a new job next year. He will either keep his current job which pays a net income of $70,000 or switch to a new job. If he changes jobs, his net income will vary depending on the state of the economy. He estimates that the economy will be Strong with 30% chance ( $85,000 net income), Average with 30% chance ($74,000 net income), or Weak with 40% chance ($63,000 net income.  


what is the optimal decision based on the optimistic approach?


a) new job. b) current job. c) none of the answers provided is correct. d) weak economy. e) strong economy.


The **optimistic approach** in decision-making assumes that the best possible outcome will occur. Under this approach, Hugh should choose the option with the highest possible payoff.

Let's analyze the options:

- **Current Job:** The net income is fixed at $70,000.
- **New Job:** The best outcome is in a **Strong Economy**, where the net income is $85,000.

Under the optimistic approach, Hugh should base his decision on the most favorable scenario:

- The **current job** will always pay $70,000.
- The **new job** could potentially pay $85,000 if the economy is strong.

Since $85,000 (new job in a strong economy) is greater than $70,000 (current job), the **optimal decision** using the optimistic approach is to switch to the new job.

So the answer is:  
**a) new job.**

Would you like a detailed breakdown or have any further questions?

Here are 5 related questions to think about:
1. What is the expected value of the new job based on the given probabilities?
2. How would the decision change under a pessimistic approach?
3. How can Hugh hedge against the risk of a weak economy?
4. What other factors, besides income, might influence Hugh’s decision to change jobs?
5. How does the probability distribution of economic outcomes affect decision-making?

**Tip:** When making decisions under uncertainty, it's important to consider both the best-case and worst-case scenarios, not just focus on one approach.

Hugh is considering transitioning to a new job next year. He will either keep his current job which pays a net income of $70,000 or switch to a new job. If he changes jobs, his net income will vary depending on the state of the economy. He estimates that the economy will be Strong with 30% chance ( $85,000 net income), Average with 30% chance ($74,000 net income), or Weak with 40% chance ($63,000 net income). What is the optimal decision based on the optimistic approach? a) new job. b) current job. c) none of the answers provided is correct. d) weak economy. e) strong economy.

Explore how to use the optimistic approach in decision-making, focusing on Hugh's potential job transition based on varying economic outcomes. This problem involves analyzing probabilities and net income outcomes, ideal for students learning decision theory and probability. Suitable for advanced high school and college students.

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