Question

You are trying to decide which job offer you should accept. You have the three ottets with the following specifications Option 1: Dell offers a stable salary of $100.000 a year Option 2: A&T has an Artificial intelligent project that has 30% probability to Successfully the project is good you get an annual salary of $250,000. If the project is unsuccessfully iyo n annual salary of $60,000 Option 3: You can start a new business with your friends you have probability to have an annual salary of $120,000, 15% probability to get $60,000 and 5% probability to ha. an annual salary of $0 For you the following lotteries are indifferent $250K $120K 120 $250K 1 51206 $120K SOOK $250K Ls - 1 SOK a) Represent the job offers as lotteries b) Obtain the utility values for each possible annual salary c) Based in the expected utility values which job offer is better.

Answer 1

a)

Job offers represented as lotteries

Option 1: Dell $100,000 0.3 → $250,000 Option 2: AT&T $60,000 0.7 0.8 $120,000 0.15 Option 3: Start New Business → $60,000 → $0 0.05

b)

Utility value (Option 1: Dell) = $100,000

Utility value (Option 2: AT&T) = (0.3)*($250,000)+(0.7)*($60,000) = $117,000

Utility value (Option 3: Start New Business)= (0.8)*($120,000)+(0.15)*($60,000)+(0.05)*($0) = $105,000

c)

Based on the expected utility value, Option 2 : AT&T is a better job offer with highest expected utility value ( $117,000).

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