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?

---

Definitions:

ESATA

External Serial Advanced Technology Attachment, an extension of the SATA interface to connect external storage devices to a computer.

Optical Media

Storage disks such as CDs, DVDs, and Blu-ray discs that use laser light to read and write data.

Eighth Channel

The Eighth Channel typically refers to a specific channel in a multi-channel audio or data system, which could be used for various purposes depending on the context.

Dolby

A company known for developing audio noise reduction and encoding technology, enhancing sound quality for various media.