A Risk-Averse Decision Maker Is Trying to Decide Which Alternative

question 57

Multiple Choice

A risk-averse decision maker is trying to decide which alternative to choose. The payoff table for the alternatives, given two possible states of nature, is shown below. Assuming that the decision makers risk tolerance (R) is 5, which decision should she choose based on the utility of each outcome? Assume the exponential utility function is applicable.
$$\begin{array} { | l | r | r | } \hline { \text { Alternative } } & \text { High } & { \text { Low } } \\\hline \text { A } & 20 & 5 \\\hline \mathrm { B } & 25 & 11 \\\hline \mathrm { C } & 30 & 15 \\\hline \mathrm { D } & 10 & 12 \\\hline \mathrm { E } & 50 & - 28 \\\hline \text { Prior Probability } & 0.3 & 0.7 \\\hline\end{array}$$

• A) Alternative A
• B) Alternative B
• C) Alternative C
• D) Alternative D
• E) Alternative E

---

Definitions:

Thyroid Hormone

Essential hormones produced by the thyroid gland that regulate metabolism, energy generation, and overall growth and development.

Aldosterone

A steroid hormone secreted by the adrenal glands that plays a key role in regulating blood pressure by controlling sodium and potassium levels in the blood.

Cortisol

A steroid hormone produced by the adrenal glands, involved in the body's response to stress, regulation of metabolism, and immune response.

Growth Hormone

A hormone produced by the pituitary gland that stimulates cell growth, reproduction, and regeneration in the human body.