Question 4

You are given the following prizes in a decision situation:

x1 - win AUD 35,000 of the annual profit of your business company

x2 - win AUD 20,000 of the annual profit of your business company

x3 - win AUD 5,000 of the annual profit of your business company

x4 - make AUD 4,000 of the annual loss of your business company

Complete the following tasks:

A. Identify the best and worst prizes and assign their utilities.

B. Complete and describe in detail the dialogs to elicit the uncertainty intervals of the utilities of the other two prizes (other than the best and the worst, identified in Part A) using the probability equivalence method.

C. Complete and describe in detail the dialogs to elicit the uncertainty intervals of the utilities of the other two prizes (other than the best and the worst, identified in Part A) using the lottery equivalence method.

D. Construct the two utility functions resulting from the two different utility elicitation methods and compare the difference in the resulting curve and its relation to the elicited preferences of the decision maker. Provide references to support your statements where appropriate.