Utility theory, While uncertain, they have estimated the net revenue from this patent to, Risk Management

Utility theory, Risk Management

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While uncertain, they have estimated the net revenue from this patent to have the proba- bility distribution,
??(??) = ?? ??????(-????)
in which ?? = 0.05 and x=million dollars (x = 0). The expected value of the profits (EMV) is
E[x] = ??!! = $20??, and the variance is Var[x] = ??!! = 400??!.
Lulu has worked with the SOAR’s Board of Directors to understand the corporate attitude toward risk. The company is not very large, so they are quite averse to risk. She has approx- imated the corporate utility function as,
?? ?? =1-??!!.!"!
in which x=million dollars (x = 0) (Figure 2).
What price should SOAR Technologies be willing to accept in exchange for the patent?

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Utility theory, Risk Management

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