5. Three decision makers have assessed utilities for the following decision problem (payoff in dollars): State of Nature Decision Alternative 55 d₁ d2 5280 $1 $2 $3 50 -20 100 -100 The indifference probabilities are as follows: Indifference Probability (p) ☐ Payoff Decision Maker A 100 1.00 80 0.95 50 0.90 20 0.70 -20 0.50 -100 0.00 Decision Maker B 1.00 0.70 0.60 0.45 0.25 0.00 a. Plot the utility function for money for each decision maker. Decision Maker C 1.00 0.90 0.75 0.60 0.40 0.00 b. Classify each decision maker as a risk avoider, a risk taker, or risk neutral. C. For the payoff of 20, what is the premium that the risk avoider will pay to avoid risk? What is the premium that the risk taker will pay to have the opportunity of the high payoff?
5. Three decision makers have assessed utilities for the following decision problem (payoff in dollars): State of Nature Decision Alternative 55 d₁ d2 5280 $1 $2 $3 50 -20 100 -100 The indifference probabilities are as follows: Indifference Probability (p) ☐ Payoff Decision Maker A 100 1.00 80 0.95 50 0.90 20 0.70 -20 0.50 -100 0.00 Decision Maker B 1.00 0.70 0.60 0.45 0.25 0.00 a. Plot the utility function for money for each decision maker. Decision Maker C 1.00 0.90 0.75 0.60 0.40 0.00 b. Classify each decision maker as a risk avoider, a risk taker, or risk neutral. C. For the payoff of 20, what is the premium that the risk avoider will pay to avoid risk? What is the premium that the risk taker will pay to have the opportunity of the high payoff?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter9: Decision Making Under Uncertainty
Section9.2: Elements Of Decision Analysis
Problem 2P
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