Eddie's risk attitude can be expressed by the utility function: u(x)=2(x+200)^0.5. He is facing the following decision opportunity (invest either in a stock or a certificate of deposit,CD) as illustrated by the following decision tree. a) What do the boxes and ovals (or circles) in the above decision diagram represent? b) Should Eddie decide on which investment to take by choosing the one with the highest expected value of payoffs? If yes, which one (a stock or a CD) should he pick? If no, explain why. c) Find Eddie's expected utility for the stock investment. Round up to 2 decimal places. d) What is Eddie's CE for the stock investment? What is the value of his choice at the decision node? Round up to 2 decimal places. e) If Eddie is a deltaperson and he has access to free clairvoyance on the performance of the stock, what is the most he is willing to pay for the clairvoyance?

Dollar Value Good performance 0.3 $1,000 Buy a stock 0.7 -$100 Bad performance $105 Buy a CD No Clairvoyance (The value of the decision you made earlier) Dollar Value Good performance $1,000 Buy a stock "Good performance" -$100 Bad performance $105 Buy a CD Free Clairvoyance Good performance $1,000 Buy a stock -$100 "Bad performance" Bad performance $105 Buy a CD Dollar Value Good performance 0.3 $1,000 Buy a stock 0.7 -$100 Bad performance $105 Buy a CD No Clairvoyance (The value of the decision you made earlier) Dollar Value Good performance $1,000 Buy a stock "Good performance" -$100 Bad performance $105 Buy a CD Free Clairvoyance Good performance $1,000 Buy a stock -$100 "Bad performance" Bad performance $105 Buy a CD