Suppose we have a decision problem that may pay the monetary values below: 100 1,000 2,500 5,000
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Suppose we have a decision problem that may pay the monetary values below:
100 1,000 2,500 5,000 9,000 15,000 20,000
- [17 points] Select one of your team members as the only decision maker. The two other team members will be asking questions to the this selected team member. Assume that the above problem is a personal decision problem. Estimate the selected team member's utility for each payoff using certainty equivalents, then probability equivalents and finally using an exponential utility model. Plot utility curve for each approach on the same graph. Do they resemble each other? What kind of a decision maker is your team member? Explain.
- [18 points] The other two members of your team will be the co-decision makers of a company. The member in part
(a) will be the one asking questions now. Answer the same questions as in part (a) assuming that the above problem is NOT a personal problem but a corporate decision problem. Do not forget to plot the utility curve for each approach and to comment and explain on the type of decision makers.
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ISBN: 978-0470547847
4th edition
Authors: Donald Voet, Judith G. Voet, Charlotte W. Pratt
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