Reference no: EM132860607

HW7. It's quantitative analysis Sarah is thinking about going to a 1-year MBA program right after graduation. After considerable information collection and analysis by talking with the MBA Director, former MBA graduates, and the Job Placement Director, as well as going through self-examination of her own academic capabilities, she estimates that she has an 80% chance of completing the MBA, and after getting the MBA, a 30% chance of getting (A) a Manager position and a 70% chance of getting (B) a Senior Staff position. On the other hand, if she fails the MBA program, she estimates that she has a 60% chance of getting (C ) an entry position, and a 40% chance of (D) being jobless and deeply in debt. Sarah assigns a utility or degree of desirability of 1000 to the best outcome A and -100 to the worst outcome D.

To estimate the utilities of in-between outcomes B and C, Sarah goes through a mental experiment and obtains the following results:

(1) She feels that the utility or degree of desirability of Outcome B is the same as that of a gamble in which she has a 50% probability of getting Outcome A and a 50% probability of getting Outcome D. Use this experiment to compute her expected utility or degree of desirability for Outcome B?

(2) She feels that the utility or degree of desirability of Outcome C is the same as that of a gamble in which she has a 20% probability of getting Outcome A and an 80% probability of getting Outcome D. Use this experiment to compute her expected utility or degree of desirability for Outcome C?

(3) Given all the information on the probabilities and expected utilities of the outcomes, compute Sarah's expected utility or degree of desirability for going to the MBA program right after graduation.