3. Farmer Jobu is deciding between planting two crops for the coming season: (com, beans). The...
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3. Farmer Jobu is deciding between planting two crops for the coming season: (com, beans). The two possible states of Nature are (good weather and bad weather), and while beans are more weather resistant, corn is more profitable. . It Jobu plants com (a corn lottery. Lc, there will be 0.7 probability of good weather, yielding a gain of $20 mil, in profits, and a 0.3 probability of bad, yielding a loss of $8 mil. Planting beans (bean lottery, L.) gives a 0.9 probability of good weather, resulting in $10 mill. in gains, and a 0.1 probability of bad, resulting in a $2 mil. loss. Which crop gives him the highest expected utility, assuming he gets direct utility from money? a. Draw a decision tree to guide us b. Find Jobu's expected utility for each lottery, assuming he has preferences over money given by U₁(m) = m Which should he take. Do not plot the utility function. c. Now, assume his utility function is u(m)-m^2. Which should he take? Do not plot the utility function. 3. Farmer Jobu is deciding between planting two crops for the coming season: (com, beans). The two possible states of Nature are (good weather and bad weather), and while beans are more weather resistant, corn is more profitable. . It Jobu plants com (a corn lottery. Lc, there will be 0.7 probability of good weather, yielding a gain of $20 mil, in profits, and a 0.3 probability of bad, yielding a loss of $8 mil. Planting beans (bean lottery, L.) gives a 0.9 probability of good weather, resulting in $10 mill. in gains, and a 0.1 probability of bad, resulting in a $2 mil. loss. Which crop gives him the highest expected utility, assuming he gets direct utility from money? a. Draw a decision tree to guide us b. Find Jobu's expected utility for each lottery, assuming he has preferences over money given by U₁(m) = m Which should he take. Do not plot the utility function. c. Now, assume his utility function is u(m)-m^2. Which should he take? Do not plot the utility function.
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a Decision tree Plant Corn La Good Weather Bad Weather Profit 20 mil Loss 8 ... View the full answer
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Introduction to Management Science A Modeling and Cases Studies Approach with Spreadsheets
ISBN: 978-0078024061
5th edition
Authors: Frederick S. Hillier, Mark S. Hillier
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