ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Question

8) Three decision makers have assessed utilities for the problem whose payoff table appears
below.

 

probabilities and payoffs.

 

S1

S2

S3

D1

  500

 100

-400

D2

 200

  150

100

D3

-100

200

300

Probability

.2

.6

.2

 


Indifference Probability for Person

Payoff                   A                                                             B                                                              C


300                        .95                                                          .68                                                         .45
200                        .94                                                          .64                                                         .32
150                        .91                                                           .62                                                        .28
100                        .89                                                           .60                                                         .22
-100                       .75                                                           .45                                                         .10
a.  Plot the utility function for each decision maker.
b.  Characterize each decision maker's attitude toward risk.
c.  Which decision will each person prefer?

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