How can you best describe jason attitude toward risk

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Reference no: EM131929665

Question: 1. Jason Scott has decided to incorporate utility theory into his decision with his mortgage application. The following table describes Jason's utility function:

(a) How can you best describe Jason's attitude toward risk? Justify your answer.

(b) Will the use of utilities affect Jason's original decision?

2. An investor is deciding whether to build a retail store. If she invests in the store and it is successful, she expects a return of $100,000 in the first year. If the store is not successful, she will suffer a loss of $80,000. She guesses that the probability that the store will be a success is 0.6.

To remove some of the uncertainty from this decision, the investor tries to establish more information, but this market research will cost $20,000. If she spends this money, she will have more confidence in her investment. There is a 0.6 probability that this information will be favorable; if it is, the likelihood that the store will be a success increases to 0.9. If the information is not favorable, the likelihood that the store will be a success reduces to only 0.2. Of course, she can elect to do nothing.

(a) What do you recommend?

(b) How much is the information worth? What is its efficiency?

Reference no: EM131929665

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