=3-49 In this chapter, a decision tree was developed for John Thompson (see Figure 3.5 for the

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=3-49 In this chapter, a decision tree was developed for John Thompson (see Figure 3.5 for the complete decision tree analysis). After completing the analysis, John was not completely sure that he is indifferent to risk. After going through a number of standard gambles, John was able to assess his utility for money.

Here are some of the utility assessments:

U(−$190,000) = 0, U(−$180,000) = 0.05, U(−$30,000) = 0.10, U(−$20,000) = 0.15, U(−$10,000) = 0.2, U($0) = 0.3, U($90,000) = 0.15,

U(−$100,000) = 0.6, U($190,000) = 0.95, and U($200,000) = 1.0. If John maximizes his expected utility, does his decision change?

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Quantitative Analysis For Management

ISBN: 9789332578692

12th Edition

Authors: Barry Render, Ralph M. Stair, Michael E. Hanna

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