The payoff table for these two decisions

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Reference no: EM1317612

Chez Paul is contemplating either opening another restaurant or expanding its existing location. The payoff table for these two decisions is:

 

s1

s2

s3

New Restaurant

-$80K

$20K

$160K

Expand

-$40K

$20K

$100K

 

Paul has calculated the indifference probability for lottery having a payoff of $160K with probability p and -$80K with probability (1-p) as follows:

Amount

Indifference Probability (p)

-$40K

.4

$20K

.7

$100K

.9

Evaluate the result in part c with the decision using the expected value approach.

Reference no: EM1317612

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