(Solution) - In Problem 22 if P s1 0 25 P s2 0 50 -(2025 Original AI-Free Solution)

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Academic Level: Undergrad. (yrs 3-4)

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Pages: 5 Words: 1375

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In Problem 22, if P(s1) = 0.25, P(s2) = 0.50, and P(s3) = 0.25, find a recommended decision for each of the three decision makers.
In Problem 22,

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 20, 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?