Math Solutions

(See Solution) For the payoff table, The decision-maker will use P(s1)=.15, P(s2)=.5, and P(s3)=.35. For 5 points each, answer the following questions.

Question: For the payoff table,

The decision-maker will use P(s1)=.15, P(s2)=.5, and P(s3)=.35. For 5 points each, answer the following questions.

  1. What alternative would be chosen according to expected value?
  2. 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.

    Let U(40,000)=10 and U(-15,000)=0 and find the utility value for each payoff.
  3. What alternative would be chosen according to the expected utility?

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