tie4203-20-tut-07.pdf - TIE4203 Decision Analysis in Industrial Operations Management Tutorial#7 Question 1(P6.7 Consider decision A(below where the

# tie4203-20-tut-07.pdf - TIE4203 Decision Analysis in...

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TIE4203 (2020) tut-07-1 TIE4203 Decision Analysis in Industrial & Operations Management Tutorial #7 Question 1 (P6.7) Consider decision A (below) where the dollar values are winnings and the probabilities are the assessments of the deal’s owner. ( a ) Suppose Rex, whose utility function for dollars is 5000 1 ) ( x e x u = owns decision A . i . What would be his certainty equivalent for decision A ? ii . What is the most Rex should pay for clairvoyance on D before making decision A ? iii . What is the most Rex should pay for clairvoyance on D before making decision C but after making decision A ? iv. What is the most Rex should pay for clairvoyance on B before making decision A ? ( b ) Paulina’s utility function for dollars of total wealth is 000 , 10 ) ( 2 x x u = . Her current wealth is \$1,000. Suppose she owned decision A . i. What would be her certainty equivalent for decision A ? ii . Should she pay \$15 for clairvoyance on D before making decision A ? 0.5 \$375 0.5 D \$100 \$107 C \$275 0.3 0.7 \$250 B A Value
TIE4203 (2020) tut-07-2 Question 2 (P6.8) Les is considering giving away deals A and B .