In Problem 22, if P(s1) = 0.25, P(s2) = 0.50, and P(s3) = 0.25, find a recommended decision for each of the three decision makers.

In Problem 22,

The indifference probabilities are as follows:

a. Plot the utility function for money for each decision maker.
b. Classify each decision maker as a risk avoider, a risk taker, or risk-neutral.
c. For the payoff of 20, what is the premium that the risk avoider will pay to avoid risk? What is the premium that the risk taker will pay to have the opportunity of the high payoff?

Transcribed Image Text:

State of Nature Decision Alternative 20 80 S. 50 100 S3 -20 -100 d, Indifference Probability (p) Decision Maker B Payoff 100 80 50 20 -20 Decision Maker A 1.00 0.95 0.90 0.70 0.50 0.00 1.00 0.70 0.60 0.45 0.25 0.00 Decision MakerC 1.00 0.90 0.75 0.60 0.40 0.00 -100