Question: Starting with the finished version of Example 7.2, change the decision criterion to maximize expected utility, using an exponential utility function with a risk tolerance
Starting with the finished version of Example 7.2, change the decision criterion to "maximize expected utility," using an exponential utility function with a risk tolerance of $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 criterioncontinue with development and then market if successful. The risk tolerance must reach $160,000,000 before the risk-averse company acts the same as the EMV-maximizing company. b. With a risk tolerance of $320,000,000, the company views the optimal strategy as equivalent to receiving a sure $ 3.2 million , even though the EMV from the original strategy (with no risk tolerance) is $ 1,072 . (Round your final answer to the nearest $100, if necessary.)
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