The payoff table for these two decisions

Reference no: EM1317612

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

	s1	s2	s3
New Restaurant	-$80K	$20K	$160K
Expand	-$40K	$20K	$100K

Paul has calculated the indifference probability for lottery having a payoff of $160K with probability p and -$80K with probability (1-p) as follows:

Amount	Indifference Probability (p)
-$40K	.4
$20K	.7
$100K	.9

Evaluate the result in part c with the decision using the expected value approach.

Reference no: EM1317612

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