Chapter 12, Problem 23P

In Problem 22, if P(s₁) = 0.25, P(s₂) = 0.50, and P(s₃) = 0.25, find a recommended decision for each of the three decision makers. (Note: For the same decision problem, different utilities can lead to different decisions.)

22. Three decision makers have assessed utilities for the following decision problem (payoff in dollars):

The indifference probabilities are as follows:

1. a. Plot the utility function for money for each decision maker.
2. b. Classify each decision maker as a risk avoider, a risk taker, or risk-neutral.
3. c. For the payoff of 20, what is the premium that the risk avoider will pay to avoid risk? What is the premium that the risk taker will pay to have the opportunity of the high payoff?