Exam 5: Utility and Game Theory

For a two-person zero-sum game,which one of the following is false?

A decision maker whose utility function graphs as a straight line is

When monetary value is not the sole measure of the true worth of the outcome to the decision maker,monetary value should be replaced by utility.

The risk neutral decision maker will have the same indications from the expected value and expected utility approaches.

Suppose that there are only two vehicle dealerships (A and B)in a small city.Each dealership is considering three strategies that are designed to take sales of new vehicles from the other dealership over a period of four months.The strategies,assumed to be the same for both dealerships,are: Strategy 1: Offer a cash rebate on a new vehicle. Strategy 2: Offer free optional equipment on a new vehicle. Strategy 3: Offer a 0% loan on a new vehicle. The payoff table (in number of new vehicle sales gained per week by Dealership A (or lost by Dealership B)is shown below. Identify the pure strategy for this two-person zero-sum game.What is the value of the game?

The risk premium is never negative for a conservative decision maker.

A risk neutral decision maker will have a linear utility function.

If the payoff from outcome A is twice the payoff from outcome B,then the ratio of these utilities will be

A decision maker has chosen .4 as the probability for which he cannot choose between a certain loss of 10,000 and the lottery p(-25000)+ (1-p)(5000).If the utility of -25,000 is 0 and of 5000 is 1,then the utility of -10,000 is

A decision maker has the following utility function What is the risk premium for the payoff of 50?

When the decision maker prefers a guaranteed payoff value that is smaller than the expected value of the lottery,the decision maker is

Super Cola is considering the introduction of a new 8 oz.root beer.The probability that the root beer will be a success is believed to equal .6.The payoff table is as follows: Success (s₁)Failure (s₂) Produce $250,000 -$300,000 Do Not Produce -$50,000 -$20,000 Company management has determined the following utility values: a.Is the company a risk taker,risk averse,or risk neutral? b.What is Super Cola's optimal decision?

Values of utility

Two banks (Franklin and Lincoln)compete for customers in the growing city of Logantown.Both banks are considering opening a branch office in one of three new neighborhoods: Hillsboro,Fremont,or Oakdale.The strategies,assumed to be the same for both banks,are: Strategy 1: Open a branch office in the Hillsboro neighborhood. Strategy 2: Open a branch office in the Fremont neighborhood. Strategy 3: Open a branch office in the Oakdale neighborhood. Values in the payoff table below indicate the gain (or loss)of customers (in thousands)for Franklin Bank based on the strategies selected by the two banks. Identify the neighborhood in which each bank should locate a new branch office.What is the value of the game?

Consider the following two-person zero-sum game.Assume the two players have the same two strategy options.The payoff table shows the gains for Player A. Determine the optimal strategy for each player.What is the value of the game?

The decision alternative with the best expected monetary value will always be the most desirable decision.

A game has a saddle point when the maximin payoff value equals the minimax payoff value.

When consequences are measured on a scale that reflects a decision maker's attitude toward profit,loss,and risk,payoffs are replaced by

A decision maker who is considered to be a risk taker is faced with this set of probabilities and payoffs For the lottery p(80)+ (1 - p)(-50),this decision maker has assessed the following indifference probabilities Payoff Probability 50 .60 20 .35 10 .25 5 .22 0 .20 -10 .18 -25 .10 Rank the decision alternatives on the basis of expected value and on the basis of expected utility.

Burger Prince Restaurant is considering the purchase of a $100,000 fire insurance policy.The fire statistics indicate that in a given year the probability of property damage in a fire is as follows: a.If Burger Prince was risk neutral,how much would they be willing to pay for fire insurance? b.If Burger Prince has the utility values given below,approximately how much would they be willing to pay for fire insurance?