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.
Payo ff Probability
10,000 .85
1000 .60
-2000 .53
-5000 .50
Let U(40,000) = 10 and U(-15,000) = 0and find the utility value for each payoff.
c.What alternative would be chosen according to expected utility? |