Three Decision Makers Have Assessed Payoffs for the Following Decision

question 43

Essay

Three decision makers have assessed payoffs for the following decision problem (payoff in dollars):

The indifference probabilities are as follows:
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:

Opportunities

Situations or conditions that present chances for advancement or success.

Peers

Individuals who are of approximately the same age, social status, or interest group, often influencing each other’s behaviors and beliefs.

Child Maltreatment

Behavior towards a child that is outside the norms of conduct and entails substantial risk of causing physical or emotional harm.

Probability

The measure of the likelihood that an event will occur, expressed as a number between 0 and 1, where 0 indicates impossibility and 1 indicates certainty.