Three Decision Makers Have Assessed Payoffs for the Following Decision

question 18

Essay

Three decision makers have assessed payoffs for the following decision problem (payoff in dollars).
​ $$\begin{array} { | c | c | c | c | } \hline { \text { Decision Alternative } } & { \text { State of Nature } } \\\hline & s 1 & s 2 & s 3 \\\hline d 1 & 15 & 40 & - 20 \\\hline d 2 & 60 & 80 & - 80 \\\hline\end{array}$$ ​
The indifference probabilities are as follows:
$\begin{array}{cccc}\text { Indifference Probability }(p)\\\text {payoff}& \text { Decision Maker A } & \text { Decision Maker B } & \text { Decision Maker C } \\\hline 80 & \text { Does not apply } & \text { Does not apply } & \text { Does not apply } \\60 & 0.7 & 0.95 & 0.87 \\40 & 0.5 & 0.9 & 0.74 \\15 & 0.3 & 0.8 & 0.59 \\-20 & 0.15 & 0.6 & 0.37 \\-80 & \text { Does not apply } & \text { Does not apply } & \text { Does not apply } \\\hline\end{array}$
a. Plot the utility function for money for each decision maker.
b. Classify each decision maker as a risk avoider, a risk taker, or risk neutral.
c. For the payoff of 40, 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?

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Definitions:

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Testimony by a person who was present at an event about what they observed, significant in judicial processes but prone to inaccuracies.

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The state of being free from guilt or moral wrong, often used in the context of the legal system.

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A professional who has obtained a license to practice psychology in their jurisdiction, meeting the educational, training, and examination requirements established by a regulatory body.