#3. Consider the following payoff table (where the payoffs are measured in dollars). State 2 81 256 .4 Value Act 1 Act 2 Probabilities State 1 16 0 .6 The modestly risk averse decision maker uses the...
#3. Consider the following payoff table (where the payoffs are measured in dollars). State 2 81 256 .4 Value Act 1 Act 2 Probabilities State 1 16 0 .6 The modestly risk averse decision maker uses the square root utility function, i.e., U(x) - x050- x. A severely risk averse decision maker uses the fourth-root utility function, i.e., V(x) - x025 #3a, which act would the modestly risk averse decision maker choose via the maximum expected utility rule? (Show your work.) #3a, which act would the severely risk averse decision maker choose via the maximum expected utility rule? (Show your work.)
#3. Consider the following payoff table (where the payoffs are measured in dollars). State 2 81 256 .4 Value Act 1 Act 2 Probabilities State 1 16 0 .6 The modestly risk averse decision maker uses the square root utility function, i.e., U(x) - x050- x. A severely risk averse decision maker uses the fourth-root utility function, i.e., V(x) - x025 #3a, which act would the modestly risk averse decision maker choose via the maximum expected utility rule? (Show your work.) #3a, which act would the severely risk averse decision maker choose via the maximum expected utility rule? (Show your work.)