Question
A company must decide its investments between three mutually exclusive projects: Project P provides a net profit of $50 million with a probability 0.75, and
A company must decide its investments between three mutually exclusive projects: Project P provides a net profit of $50 million with a probability 0.75, and a net loss of $10 million with probability 0.25. Project Q provides a net profit of $100 million with a probability 0.6, and a net loss of $40 million with probability 0.4. Project R provides a net profit of $200 million with a probability 0.5, and a net loss of $100 million with probability 0.5. Suppose that the CEO of the corporation has expected utility preferences and is risk averse (i.e. concave utility function, e.g. Bernoulli's logarithmic utility.). Can you determine his preferences over P, Q and R?
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