Calculate the expected utility for all alternatives

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Reference no: EM13223676

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

State of Nature

Decision	s1	s2	s3
d1	-5,000	1,000	10,000
d2	-15,000	-2,000	40,000

a. Calculate the expected values of all alternatives. 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
1,000	.60
-2,000	.53
-5,000	.50

c. Calculate the Expected Utility for all alternatives

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

Reference no: EM13223676

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