Chez Paul Is Contemplating Either Opening Another Restaurant or Expanding

question 33

Essay

Chez Paul is contemplating either opening another restaurant or expanding its existing location.The payoff table for these two decisions is:
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:

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)= .4,P(s₂)= .3,and P(s₃)= .3.Which decision should Paul make? Compare with the decision using the expected value approach.

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Definitions:

Identifying The Problem

The initial step in the problem-solving process which involves recognizing and defining the issue that needs to be addressed.

Dispersed Accountability

The distribution of responsibility and accountability across various levels and sectors of an organization, resulting in shared responsibility.

Group-Aided

The process of making decisions or solving problems as a collective group rather than by individuals alone.

Task Force

A temporary group of people formed to carry out a specific mission or project, often multidisciplinary.