PISP- Personal Indifference Selling Price PIBP - Personal Indifference Buying Pr
ID: 3013430 • Letter: P
Question
PISP- Personal Indifference Selling Price
PIBP - Personal Indifference Buying Price
Sam has just paid $215 for a certificate that allows him to call the flip of "unfair" coin. If the calls it correctly, he will win $500. If he calls it incorrectly, he will win $0. His PISP for the certificate is $315. The clairvoyant offers co tell him the outcome of the impending coin toss. What is Sam s PIBP for the clarvoyant's information? You do not know anything about Sam's risk attitude. $185 Need Sam's w-curve to determine h/s PIBP for the information $285 Need Sam's w-curve and the probability he assigns to the "unfair"coin landing Heads (or Tails) to determine his PIBP for the information For Problems, consider the decision situation given n the following decision tree where the dollar values are winnings and the probabilities are the assessments of the deal's owner. Suppose Stuart, who is risk-neutral, owned the deal below. What is Stuart's certain equivalent for the deal? 175 200 215 185 What is the most Stuart should pay for clairvoyance on uncertainty D before making decision A? 215 50 30 185 What is the most Stuart should pay for clairvoyance on uncertainty B before making decision A? 25.5 7.5 192.5 185Explanation / Answer
i. 175 because it is certain. (As there is no probability indicated)
ii. 50 because (0.5*100)
iii. 185
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