Three decision makers have assessed payoffs for the following decision problem (payoff in dollars):

The indifference probabilities are as follows:
a. Plot the utility function for money for each decision maker.
b. Classify each decision maker as a risk avoider, a risk taker, or risk neutral.
c. For the payoff of 40, what is the premium that the risk avoider will pay to avoid risk? What is the premium that the risk taker will pay to have the opportunity of the high payoff?

Question

Three decision makers have assessed payoffs for the following decision problem (payoff in dollars):
  
The indifference probabilities are as follows:
  a. Plot the utility function for money for each decision maker.
b. Classify each decision maker as a risk avoider, a risk taker, or risk neutral.
c. For the payoff of 40, what is the premium that the risk avoider will pay to avoid risk? What is the premium that the risk taker will pay to have the opportunity of the high payoff?

Quizplus · Accepted Answer

The Answer of Three decision makers have assessed payoffs for the following decision problem (payoff in dollars):
  
The indifference probabilities are as follows:
  a. Plot the utility function for money for each decision maker.
b. Classify each decision maker as a risk avoider, a risk taker, or risk neutral.
c. For the payoff of 40, what is the premium that the risk avoider will pay to avoid risk? What is the premium that the risk taker will pay to have the opportunity of the high payoff?

Three Decision Makers Have Assessed Payoffs for the Following Decision