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Compute the utility for the pay off and give a summary.

Chez Paul is contemplating either opening another restaurant or expanding its existing location. The payoff table for these two decisions is:

 

s1

s2

s3

New Restaurant

-$80K

$20K

$160K

Expand

-$40K

$20K

$100K

Paul has find outd the indifference likelihood for the lottery having a payoff of $160K with probability p and -$80K with possibility (1-p) as follows:

Amount

Indifference Probability(p)

-$40K

.4

$20K

.7

$100K

.9

Is Paul a risk avoider, a risk taker, or risk neutral? Give explanation.

Statistics and Probability, Statistics

  • Category:- Statistics and Probability
  • Reference No.:- M920790

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