1. A decision maker who is considered to be a risk taker is faced with this set
ID: 334193 • Letter: 1
Question
1. A decision maker who is considered to be a risk taker is faced with this set of probabilities and payoffs
State of Nature
Decision
s1
s2
s3
d1
5
10
20
d2
?25
0
50
d3
?50
?10
80
Probability
.30
.35
.35
The following indifference probabilities:
Payoff
Probability
50
.60
20
.35
10
.25
5
.22
0
.20
?10
.18
?25
.10
a. Write the lottery
b. Rank the decision alternatives on the basis of expected value
c. Rank the decision alternatives on the basis of expected utility.
State of Nature
Decision
s1
s2
s3
d1
5
10
20
d2
?25
0
50
d3
?50
?10
80
Probability
.30
.35
.35
Explanation / Answer
EV(d1) = 12EV(d2) = 10EV(d3) = 9.5EU(d1) = 2.76EU(d3) = 3.1EU(d3) = 4.13
PTS:
1
TOP:
Expected utility approach
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.