Consider the Following Problem with Four States of Nature,three Decision

question 14

Essay

Consider the following problem with four states of nature,three decision alternatives,and the following payoff table (in $s):
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The indifference probabilities for three individuals are as follows:
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a.Classify each person as a risk avoider,risk taker,or risk neutral.
b.For the payoff of $400,what premium will the risk avoider pay to avoid risk? What premium will the risk taker pay to have the opportunity of the high payoff?
c.Suppose each state is equally likely.What are the optimal decisions for each of these three people?
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