Starting with the finished version of Example 9.2, change the decision criterion to “maximize expected utility,” using an exponential utility function with risk tolerance $5000 (really $5 million). Display certainty equivalents on the tree.

a. Keep doubling the risk tolerance until the company’s best strategy is the same as with the EMV criterion— continue with development and then market if successful. Comment on the implications of this.

b. With this final risk tolerance, explain exactly what the certainty equivalents in cells B31, C27, D23, and E17 (that is, those to the right of the various nodes) really mean. You might phrase these explanations something like, “If Acme were at the point where …, they would be willing to trade … for …”.