Three decision makers have assessed utilities for the following decision problem (payoff test in dollars): The indifference
Question:
Three decision makers have assessed utilities for the following decision problem (payoff test in dollars):
The indifference probabilities are as follows:
a. Plot the utility function for money for each decision maker.
b. Classify each decision maker as a risk avoider, a risk taker, or risk neutral.
c. For the payoff of 20, what is the premium that the risk avoider will pay to avoid risk? What is the premium that the risk taker will pay to have the opportunity of the highpayoff?
Transcribed Image Text:
State of Nature Decision Alternative 20 80 50 100 -20 -100 d2 Payoff 100 80 50 20 -20 -100 Decision Maker A 1.00 0.95 0.90 0.70 0.50 0.00 Indifference Probability (p) Decision Maker B 1.00 0.70 0.60 0.45 0.25 0.00 Decision Maker C 1.00 0.90 0.75 0.60 0.40 0.00
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a b A risk avoider B risk taker C risk neutral c Risk avoider A at ...View the full answer
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Related Book For
Quantitative Methods for Business
ISBN: 978-0324651751
11th Edition
Authors: David Anderson, Dennis Sweeney, Thomas Williams, Jeffrey cam
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