Mr. Smart is an investor with $15,000 to invest. He has narrowed his choice down to two possible investments: ? Mutual fund ? Common shares in Buyme Corporation Figure 3.5 gives a decision tree for Mr. Smart's situation. Mr. Smart is risk-averse. The amount of utility he derives from a payoff is Utility = 2ln(payoff) where "ln" denotes natural logarithm.

Because of a planned major purchase, Mr. Smart intends to sell his investment one year later. The payoffs represent the proceeds from the sale of the investment and receipt of any dividends, net of the initial investment.

The probabilities on Figure 3.5 represent Mr. Smart's prior probabilities about the state of the economy (good or bad) over the coming year.

Required a. Calculate Mr. Smart's expected utility for each action, and indicate which action he would choose if he acted on the basis of his prior information