Question: For the payoff table below, the decision maker will use P(s) = 0.15, P(s2) = 0.5, and P($3) = 0.35. Decision di $1 -5000 State

For the payoff table below, the decision maker will use P(s) = 0.15, P(s2) = 0.5, and P($3) = 0.35. Decision di $1 -5000 State of Nature $2 $3 1000 10,000 -2000 40,000 d2 -15,000 For a lottery having a payoff of 40,000 with probability p and -15,000 with probability (1 - p), the decision maker expressed the following indifference probabilities. Payoff Probability Utility 10,000 .85 1000 .60 a -2000 -5000 .53 .50 b Let U(40,000) 10 and U(-15,000) = 0. a = 6 0 ,b= 5 0 What alternative would be chosen according to expected utility? EU(d1)= 6.726 and EU(d2) 6.15 so choose d1

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