An Investor Has the Following Utilities Corresponding to Various Possible

question 36

Multiple Choice

An investor has the following utilities corresponding to various possible returns on an investment:
$\begin{array}{|c|l|}\hline \text { Profit } &{\text { Utility }} \\\hline \$ 100,000 & 1 \\\hline \$ 75,000 & 0.9 \\\hline \$ 40,000 & 0.6 \\\hline \$ 0 & 0.25 \\\hline-\$ 5,000 & 0.10 \\\hline-\$ 10,000 & 0 \\\hline\end{array}$
-The investor is considering two potential investments with the following potential returns and the probability of these returns. $\begin{array}{|l|l|r|l|}\hline \text { Investment } 1&&\text { Investment } 2\\\hline \text { Profit } & \text { Probability } &{\text { Profit }} & \text { Probability } \\\hline \$ 75,000 & 0.1 & \$ 100,000 & 0.2 \\\hline \$ 40,000 & 0.4 & \$ 75,000 & 0.3 \\\hline \$ \quad 0 & 0.5 & -\$ \quad 5000 & 0.5 \\\hline\end{array}$
Which investment should the investor choose and why?

• A)Investment 2 because it has the highest expected monetary value of $40,000.
• B)Investment 1 because it has the lowest expected monetary value of $23,500.
• C)Investment 2 because it has the highest expected utility of 0.52.
• D)Investment 1 because it has the lowest expected utility of 0.455.
• E)Cannot be determined without more information.

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Definitions:

Outpatient Facilities

Medical centers or clinics where patients receive treatment without being admitted overnight, including diagnostic services and minor surgical procedures.

Rising Health Care Costs

The increasing expenses associated with medical care services and products.

Medical Illnesses

Conditions that cause dysfunction or discomfort to a person’s health, often requiring medical treatment.

Demand for Health Care

The quantity of health-related services that consumers are willing and able to purchase at various prices, reflecting society's need for medical services.