Question
Considering aparticularriskeventin abuilding project that can cause structural damage under special loading conditions,thereisa10%chancethat thelosswouldamountto $2,800,000;a15%chancethattheloss wouldamountto$2,000,000;a25%chancethatthelosswouldamountto$1,500,000; anda30%chancethatthelosswouldamountto$1,000,000. The building owner can avoid this risk by
Considering aparticularriskeventin abuilding project that can cause structural damage under special loading conditions,thereisa10%chancethat thelosswouldamountto $2,800,000;a15%chancethattheloss wouldamountto$2,000,000;a25%chancethatthelosswouldamountto$1,500,000; anda30%chancethatthelosswouldamountto$1,000,000. The building owner can avoid this risk by using special retrofits which would cost $1.3M. For the owner, a 10% chance of losing $2.8M and 90% chance of losing nothing is equivalent to losing $0.5M for sure. Draw the utility curve and then suggest the best course of action based on the maximum Expected Utility Value.
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