Calculate the expected valuations of plan a and plan b

Reference no: EM13238546

Under Plan A, Mr. Huan will sell the house at a price of 700,000 yuan with probability 85%, sell at a price of 760,000 with probability 10%, and sell at a price of 670,000 with probability 5%.
Under Plan B, Mr. Huan will sell the house at a price of 690,000 with probability 60%, sell at a price of 800,000 with probability 20%, and sell at a price of 600,000 with probability 20%

V(x|r) = (x-r)^a for x=r
-?(r-x)^a for x<r

where a = 0.8 and ? = 2.

Suppose Mr. Huan's reference point is his purchase price of his home, which was 650,000. In that case, calculate his Expected Valuations of Plan A and Plan B respectively. Will he prefer Plan A or Plan B?

Reference no: EM13238546

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