The first part of the assignment is to open Excel and in column A starting in row 1 and down to row 40 generate random values using the RAND() function. Copy and special paste those values onto sheet2. You will turn in the Excel file, but you will use the information below when directed. Say an individual is faced with the decision of whether to buy auto insurance or not (like before laws in many states changed). The states of nature are that no accident occurs (with probability .992) or an accident occurs (with probability .008). Here is the payoff table for the decision maker (where -500 is read minus 500, for example) State of Nature Decision No Accident Accident Purchase insurance -500 -500 Do not purchase Ins. 0 -10000 1. Say the individual is a RISK LOVER. Create a table with plausible values of utility for the risk lover where you pick as the indifference probability for the value -500 the first value that is appropriate from your simulation in Excel (starting in cell A1 on sheet2 and working your way down the column), calculate the expected utility of each decision and state which decision is best based on the expected utility idea
The first part of the assignment is to open Excel and in column A starting in row 1 and down to row 40 generate random values using the RAND() function. Copy and special paste those values onto sheet2. You will turn in the Excel file, but you will use the information below when directed.
Say an individual is faced with the decision of whether to buy auto insurance or not (like before laws in many states changed). The states of nature are that no accident occurs (with probability .992) or an accident occurs (with probability .008).
Here is the payoff table for the decision maker (where -500 is read minus 500, for example)
State of Nature
Decision No Accident Accident
Purchase insurance -500 -500
Do not purchase Ins. 0 -10000
1. Say the individual is a RISK LOVER. Create a table with plausible values of utility for the risk lover where you pick as the indifference probability for the value -500 the first value that is appropriate from your simulation in Excel (starting in cell A1 on sheet2 and working your way down the column), calculate the expected utility of each decision and state which decision is best based on the expected utility idea
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