A firm has three investment alternatives, as indicated in the


A firm has three investment alternatives, as indicated in the following payoff table (payoffs in thousands of dollars):


See attachment…

To understand this table, let’s look at the first investment possibility, a (designated decision 1, or d1). First of all, there are three possible scenarios: s1, economic conditions improve; s2, conditions remain stable; s3, the economy nosedives. The respective probabilities for each scenario are 0.4, 0.3, and 0.3. Under d1, if the economy improves, the payoff will be 100K; if stable, 25K, if the economy is poor, the payoff is 0.

The second investment strategy is somewhat less sensitive to economic conditions, and the third is not influenced by the economy at all, guaranteeing a 50K payoff.

Using the expected value approach, which decision is preferred?


Once again referring to the payoff table that appeared in LST 4-1 (payoffs in thousands of dollars):


a. For the lottery having payoffs of $100K with probability p and $0 with probability (1-p), two decision makers expressed the indifference probabilities in the table below.

Find the most preferred decision for each decision maker using the expected utility approach (to do this: for each decision maker, substitute their indifference probabilities multiplied by ten — which arbitrarily corresponds to an indifference probability of 1.0 — for the corresponding actual values in the payoff table. Then compute the expected utility for each alternative, using these new values and the actual probabilities, exactly as you would compute expected values with actual payoffs)


b. Why don’t A and B select the same decision alternative? (that is, how do their decisions reflect their respective attitudes to risk?)


Order a unique copy of this paper
(550 words)

Approximate price: $22

Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

We value our customers and so we ensure that what we do is 100% original..
With us you are guaranteed of quality work done by our qualified experts.Your information and everything that you do with us is kept completely confidential.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

The Product ordered is guaranteed to be original. Orders are checked by the most advanced anti-plagiarism software in the market to assure that the Product is 100% original. The Company has a zero tolerance policy for plagiarism.

Read more

Free-revision policy

The Free Revision policy is a courtesy service that the Company provides to help ensure Customer’s total satisfaction with the completed Order. To receive free revision the Company requires that the Customer provide the request within fourteen (14) days from the first completion date and within a period of thirty (30) days for dissertations.

Read more

Privacy policy

The Company is committed to protect the privacy of the Customer and it will never resell or share any of Customer’s personal information, including credit card data, with any third party. All the online transactions are processed through the secure and reliable online payment systems.

Read more

Fair-cooperation guarantee

By placing an order with us, you agree to the service we provide. We will endear to do all that it takes to deliver a comprehensive paper as per your requirements. We also count on your cooperation to ensure that we deliver on this mandate.

Read more

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
The price is based on these factors:
Academic level
Number of pages