# Question

You wish to construct your personal utility function U(M) for receiving M thousand dollars. After setting U(0) = 0, you next set U(1) = 1 as your utility for receiving $1,000. You next want to find U(10) and then U(5).

(a) You offer yourself the following two hypothetical alternatives:

A1: Obtain $10,000 with probability p.

Obtain 0 with probability (1 – p).

A2: Definitely obtain $1,000.

You then ask yourself the question: What value of p makes you indifferent between these two alternatives? Your answer is p = 0.125. Find U(10).

(b) You next repeat part (a) except for changing the second alternative to definitely receiving $5,000. The value of p that makes you indifferent between these two alternatives now is p = 0.5625. Find U(5).

(a) You offer yourself the following two hypothetical alternatives:

A1: Obtain $10,000 with probability p.

Obtain 0 with probability (1 – p).

A2: Definitely obtain $1,000.

You then ask yourself the question: What value of p makes you indifferent between these two alternatives? Your answer is p = 0.125. Find U(10).

(b) You next repeat part (a) except for changing the second alternative to definitely receiving $5,000. The value of p that makes you indifferent between these two alternatives now is p = 0.5625. Find U(5).

## Answer to relevant Questions

You are given the following payoff table: (a) Assume that your utility function for the payoffs is U(x) = √x. Plot the expected utility of each alternative versus the value of p on the same graph. For each alternative, ...The CEO of Bay Area Automobile Gadgets is contemplating whether to add a road scanning device to the company’s driver support system. A series of decisions need to be made. Should basic research into the road scanning ...Verify the following relationships for an M/M/1 queueing system: The Security & Trust Bank employs 4 tellers to serve its customers. Customers arrive according to a Poisson process at a mean rate of 2 per minute. However, business is growing and management projects that the mean arrival ...You are given an M/M/2 queueing system with λ = 4 per hour and μ = 6 per hour. Determine the probability that an arriving customer will wait more than 30 minutes in the queue, given that at least 2 customers are already in ...Post your question

0