# A firm has three investment alternatives, as indicated in the

QUESTION 1:

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?

QUESTION 2:

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?)

## 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:
\$26
The price is based on these factors:
Number of pages
Urgency
Basic features
• Free title page and bibliography
• Unlimited revisions
• Plagiarism-free guarantee
• Money-back guarantee
On-demand options
• Writer’s samples
• Part-by-part delivery
• Overnight delivery
• Copies of used sources
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

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

### 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.

### Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

### Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.