So, E[U(X,)l > 0 if Pr(P E Po) < 1043/(l0? + 1043) = 0.0594. ll makes sense that t
is better than a if Pr(P 5 po) is small. The reason is that the utility of choosing t over a
is only positive when P > P0. this example is in the spirit of hypothesis testing, which
will be the subject of Chapter 8. 4