Activity 1 Activity 2 Activity 3 John EU 64 30 71.5 CE 256 120 226 RP -128 60 113 Kelly EU 80.25 38.73 68.17 CE 655.36 144 510.76 RP -527.36 -84 -397.76 Sarah EU 1208 180 743 CE 50.6 34.64 47.54 RP 77.4 25.36 65.46 EU = Expected Utility / CE = Certainty Equivalent / RP = Risk Premium
Added by Sara J.
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Step 1
The expected utility is calculated by multiplying the probability of each outcome by its corresponding utility and summing them up. For John: EU(Activity 1) = (0.5 * 64) + (0.5 * 256) = 160 EU(Activity 2) = (0.5 * 30) + (0.5 * 120) = 75 EU(Activity 3) = (0.5 * Show more…
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