6) For the payoff table below, the decision maker will use P(s1) = .15, P(s2) = .5, and P(s3) = .35. S1 S2 S3 di d2 -5000 1000 10,000 -15,000 -2000 40,000 What alternative would be chosen according to expected value? For a lottery having a payoff of 40,000 with probability p and -15,000 with probability (1-p), the decision maker expressed the following indifference probabilities. а. b. Payoff Probability 10,000 .85 1000 .60 -2000 .53 -5000 .50 Let U(40,000) = 10 and U(-15,000) = 0 and find the utility value for each payoff. What alternative would be chosen according to expected utility? с.
6) For the payoff table below, the decision maker will use P(s1) = .15, P(s2) = .5, and P(s3) = .35. S1 S2 S3 di d2 -5000 1000 10,000 -15,000 -2000 40,000 What alternative would be chosen according to expected value? For a lottery having a payoff of 40,000 with probability p and -15,000 with probability (1-p), the decision maker expressed the following indifference probabilities. а. b. Payoff Probability 10,000 .85 1000 .60 -2000 .53 -5000 .50 Let U(40,000) = 10 and U(-15,000) = 0 and find the utility value for each payoff. What alternative would be chosen according to expected utility? с.
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter17: Making Decisions With Uncertainty
Section: Chapter Questions
Problem 2MC
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6) For the payoff table below, the decision maker will use P(s1) = .15, P(s2) = .5, and P(s3) = .35.
s1 s2 s3
d1 -5000 1000 10,000
d2 -15,000 -2000 40,000
(a) What alternative would be chosen according to expected value?
(b) For a lottery having a payoff of 40,000 with probability p and -15,000 with probability (1-p), the decision maker expressed the following indifference probabilities.
Payoff Probability
10,000 .85
1000 .60
-2000 .53
-5000 .50
Let U(40,000) = 10 and U(-15,000) = 0 and find the utility value for each payoff.
(c) What alternative would be chosen according to expected utility?
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