The Manager's Utility Function for Profit Is U $\pi$ )= 10 Ln

question 25

Multiple Choice

The manager's utility function for profit is U( $\pi$ ) = 10 ln( $\pi$ ) ,where $\pi$ is the dollar amount of profit.The manager is considering a risky decision with the four possible profit outcomes shown below.The manager makes the following subjective assessments about the probability of each profit outcome: $$\begin{array} { c c } \text { Probability } & \text { Profit outcome (\$) } \\\hline 0.05 & \$ 5,000 \\0.10 & \$ 10,000 \\0.35 & \$ 15,000 \\0.50 & \$ 20,000\end{array}$$ What is the expected profit?

• A)$12,000
• B)$13,000
• C)$14,000
• D)$15,000
• E)none of the above

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Definitions:

Heuristics

Simple, efficient rules or methods used to make judgments and decisions based on limited information, often leading to satisfactory but not always optimal solutions.

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Behavioral Economics

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