Question: For the payoff table below, the decision maker will use P ( s 1 ) = .2 , P ( s 2 ) = .3

For the payoff table below, the decision maker will use P(s1) = .2, P(s2) = .3.

State of Nature

Decision

s1

s2

s3

d1

5000

1500

10,000

d2

15,000

2500

40,000

a.

What alternative would be chosen according to expected value?

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

10,000

.85

1500

.60

2500

.53

5000

.50

b.

Let U (40,000) = 10 and U (15,000) = 0

Complete the utility table.

c.

What alternative would be chosen according to expected utility?

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