Alternative would be chosen according to expected utility

Reference no: EM1317618

Find the alternative would be chosen according to expected value and utility.

For the payoff table below, the decision maker will use P (s₁) = .15, P (s₂) = .5, and P (s₃) = .35.

	s₁	s₂	s₃
d₁	-5000	1000	10,000
d₂	-15,000	-2000	40,000

a. What alternative would be chosen according to expected value?

b. For a lottery having a payoff of 40,000 with probability p and -15,000 with probability (1-p), the decision maker expressed the following indifference probabilities.

Payoff	Probability
10,000	.85
1000	.60
-2000	.53
-5000	.50

Let U(40,000) = 10 and U(-15,000) = 0 and find the utility value for each payoff.

c. What alternative would be chosen according to expected utility?

Reference no: EM1317618

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