Utility Theory Homework: Estimating Utility Functions for Four Individuals - Prof. Robert , Assignments of Humanities

Download Utility Theory Homework: Estimating Utility Functions for Four Individuals - Prof. Robert and more Assignments Humanities in PDF only on Docsity! VILLANOVA UNIVERSITY COLLEGE OF COMMERCE AND FINANCE DECISION AND INFORMATION TECHNOLOGIES UTILITY THEORY HOMEWORK DIT 2160 Introduction to Decision Sciences Dr. Nydick 1. Utility functions need to be estimated for four individuals: Alvin Armstrong, Betty Bailey, Charles Cranford, and Dennis Davis. Use a utility scale from 0 to 1. They have each provided the following information. Alvin Armstrong: Alvin is indifferent between receiving $2000 or keeping a lottery that has a 50% chance of paying $5,000 and a 50% chance of paying $0. Alvin is also indifferent between receiving $3000 or keeping a lottery that has a 50% chance of paying $5000 and a 50% chance of paying $2000. Alvin indicated that he is indifferent between receiving $750 or keeping a lottery that has a 50% chance of paying $2000 and a 50% chance of paying $0. Draw the utility curve for Alvin. Is Alvin risk neutral, risk averse, risk seeking, or some other type of decision maker? Explain you answer. Betty Bailey: Betty is indifferent between receiving $2500 or keeping a lottery that has a 50% chance of paying $5,000 and a 50% chance of paying $0. Betty is also indifferent between receiving $3750 or keeping a lottery that has a 50% chance of paying $5000 and a 50% chance of paying $2500. Betty indicated that she is indifferent between receiving $1250 or keeping a lottery that has a 50% chance of paying $2500 and a 50% chance of paying $0. Draw the utility curve for Betty. Is Betty risk neutral, risk averse, risk seeking, or some other type of decision maker? Explain you answer. Charles Cranford: Charles is indifferent between receiving $3000 or keeping a lottery that has a 50% chance of paying $5,000 and a 50% chance of paying $0. Charles is also indifferent between receiving $4500 or keeping a lottery that has a 50% chance of paying $5000 and a 50% chance of paying $3000. Charles indicated that he is indifferent between receiving $2000 or keeping a lottery that has a 50% chance of paying $3000 and a 50% chance of paying $0. Draw the utility curve for Charles. Is Charles risk neutral, risk averse, risk seeking, or some other type of decision maker? Explain you answer.