6. An analyst is assessing a DM's utility function for profit Y, in dollars, ranging from -400,000 to 2,000,000, and wishes to use a function: U(Y) = Y+400,000 0,000 2,400,000 B " -400,000 ≤ y ≤ 2,000,000 She determined that the DM is indifferent between Alternative A and Alternative B: Alternative A: Probability 0.5 of making profit $2,000,000 Probability 0.5 of making profit -$400,000 Alternative B: Probability 1.0 of making profit of $800,000 (a) What would you use for the DM's utility function? Show your work. (b) Why could you use Expected Value when analyzing problems involving profi for this DM?
6. An analyst is assessing a DM's utility function for profit Y, in dollars, ranging from -400,000 to 2,000,000, and wishes to use a function: U(Y) = Y+400,000 0,000 2,400,000 B " -400,000 ≤ y ≤ 2,000,000 She determined that the DM is indifferent between Alternative A and Alternative B: Alternative A: Probability 0.5 of making profit $2,000,000 Probability 0.5 of making profit -$400,000 Alternative B: Probability 1.0 of making profit of $800,000 (a) What would you use for the DM's utility function? Show your work. (b) Why could you use Expected Value when analyzing problems involving profi for this DM?
Chapter7: Uncertainty
Section: Chapter Questions
Problem 7.10P
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