Chez Paul Is Contemplating Either Opening Another Restaurant or Expanding

question 50

Essay

Chez Paul is contemplating either opening another restaurant or expanding its existing location.The payoff table for these two decisions is as follows:
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Paul has calculated the indifference probability for the lottery having a payoff of $160,000 with probability p and -$80,000 with probability (1 -p)as follows:
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a.Is Paul a risk avoider,a risk taker,or risk neutral?
b.Suppose Paul has defined the utility of -$80,000 to be 0 and the utility of $160,000 to be 80.What would be the utility values for -$40,000,$20,000,and $100,000 based on the indifference probabilities?
c.Suppose P(s₁)= 0.4,P(s₂)= 0.3,and P(s₃)= 0.3.Which decision should Paul make? Compare with the decision using the expected value approach.
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Definitions:

TOT Effect

The "Tip-of-the-Tongue" phenomenon, where a person cannot recall a specific word or term even though it feels just out of reach.

Serial Position Effect

A cognitive phenomenon where an individual tends to remember the first and last items in a series better than the middle items.

Phi Phenomenon

The Phi Phenomenon is the optical illusion of perceiving continuous motion between separate objects viewed rapidly in succession, foundational in the study of motion perception.

Implicit Memory Effect

The implicit memory effect refers to the influence of previous experiences on performance of a task without conscious recollection of those experiences.