Suppose That the Utility Function for a Decision Maker Is $$\sqrt { x }$$

question 5

Essay

Suppose that the utility function for a decision maker is represented as follows:
U(x)= $$\sqrt { x }$$ .The potential payoffs that are possible are illustrated below.
Payoff (x)
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1000
Convert these payoffs into utility values using the above function.Plot the utility curve and determine whether the decision maker is a risk avoider,risk indifferent,or a risk seeker.

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Definitions:

Raw Scores

The initial, unadjusted scores obtained directly from tests or assessments before any normalization or conversion.

Test-retest Reliability

A measure of the consistency and stability of test results over repeated administrations under similar conditions.

Normal Curve

A symmetric, bell-shaped graphical representation of a normal distribution in statistics, where most occurrences take place around the mean.

Standard Deviation

A statistic that measures the dispersion or variability of a dataset relative to its mean.