In this chapter a decision tree was developed for John Thompson (Figure for the complete decision tree

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In this chapter a decision tree was developed for John Thompson (Figure for the complete decision tree analysis). After completing the analysis, John was not completely sure that he is indifferent to risk. After going through a number of standard gambles, John was able to assess his utility for money. Here are some of the utility assessments:
U (– $190,000) = 0, U (– $180,000) = 0.05,
U (– $30,000) = 0.10, U (– $20,000) = 0.15,
U (– $10,000) = 0.2, U ($0) = 0.3,
U ($90,000) = 0.5, U (– $100,000) = 0.6,
U ($190,000) = 0.95 and U ($200,000) = 1.0.
If John maximizes his expected utility, does his decision change?

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Quantitative Analysis for Management

ISBN: 978-0132149112

11th Edition

Authors: Barry render, Ralph m. stair, Michael e. Hanna

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