For the Payoff Table Below,the Decision Maker Will Use P(s₁)=

question 38

Essay

For the payoff table below,the decision maker will use P(s₁)= .15,P(s₂)= .5,and P(s₃)= .35. $$\begin{array} { c | r c c } && { \text { State of Nature } } \\\text { Decision } & { s _ { 1 } } & s _ { 2 } & s _ { 3 } \\\hline d _ { 1 } & - 5000 & 1000 & 10,000 \\d _ { 2 } & - 15,000 & - 2000 & 40,000\end{array}$$
a.What alternative would be chosen according to expected value?
b.For a lottery having a payoff of 40,000 with probability p and 15,000 with probability (1  p), the decision maker expressed the following indifference probabilities. $$\begin{array} { r c } \text { Payoff } & \text { Probability } \\\hline 10,000 & .85 \\1000 & .60 \\- 2000 & .53 \\- 5000 & .50\end{array}$$ Let U(40,000) = 10 and U(15,000) = 0 and find the utility value for each payoff.
c.What alternative would be chosen according to expected utility?

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