Probability of good economic conditions

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An investor is to purchase one of three types of real estate; an apartment building, an office building, or a warehouse.  The future state of nature will determine how much profit the investor will make.  The payoff table is:

 

Economic Condition

 

Purchase

Good

Poor

Apartment building

35,000

8,000

Office building

18,000

12,000

Warehouse

22,000

20,000

 a-say the individual is a risk avoider. Create a table with plausible values of utility for a risk avoider,

b-calculate the expected utility of each decision when the probability of good economic conditions is .6,

c-state which is the best option under the expected utility concept and state the numerical value of expected utility in this case.  (please do not just highlight information and expect me to pick out the best).

Reference no: EM133076626

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