A firm has three investment alternatives. Payoffs are in thousands of dollars.

a. Using the expected value approach, which decision is preferred?
b. For the lottery having a payoff of $100,000 with probability p and $0 with probability (1 - p), two decision makers expressed the following indifference probabilities. Find the most preferred decision for each decision maker using the expected utility approach.

c. Why don’t decision makers A and B select the same decisionalternative?

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Economic Conditions Stable s2 25 50 50 0.30 Down s Decision Alternative Investment A, d Investment B, d2 Investment C,d Probabilities Up s 100 75 50 0.40 0 25 50 0.30 Indifference Probability (p) Profit $75,000 $50,000 $25,000 Decision Maker A 0.80 0.60 0.30 Decision Maker B 0.60 0.30 0.15