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Find the alternative would be selected according to expected value and utility.

For the payoff table below the decision maker will use P (s1) = .15, P (s2) = .5, and P (s3) = .35.


s1

s2

s3

d1

-5000

1000

10,000

d2

-15,000

-2000

40,000

1) describe what alternative would be chosen according to expected value?

2) For the lottery having a payoff of 40000 with probability p and -15,000 with probability (1-p) the decision maker expressed the following indifference probabilities.

Payoff

Probability

10,000

.85

1000

.60

-2000

.53

-5000

.50

Let U(40,000) = 10 and U(-15,000) = 0 also find the utility value for each payoff.

c. describe what alternative would be chosen according to expected utility?

Statistics and Probability, Statistics

  • Category:- Statistics and Probability
  • Reference No.:- M922110

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