Exam 5: Utility Game Theory

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

Given two decision makers,one risk neutral and the other a risk avoider,the risk avoider will always give a lower utility value for a given outcome.

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

Give two examples of situations where you have decided on a course of action that did not have the highest expected monetary value.​

Any 2 X 2 two-person,zero-sum,mixed-strategy game can be solved algebraically.

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

A game has a saddle point when pure strategies are optimal for both players.

Game theory models extend beyond two-person,zero-sum games.Discuss two extensions (or variations).​

The probability for which a decision maker cannot choose between a certain amount and a lottery based on that probability is

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

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

The logic of game theory assumes that each player has different information.

Chez Paul is contemplating either opening another restaurant or expanding its existing location.The payoff table for these two decisions is: Paul has calculated the indifference probability for the lottery having a payoff of $160,000 with probability p and −$80,000 with probability (1−p)as follows: a.Is Paul a risk avoider,a risk taker,or risk neutral? b.Suppose Paul has defined the utility of −$80,000 to be 0 and the utility of $160,000 to be 80.What would be the utility values for −$40,000,$20,000,and $100,000 based on the indifference probabilities? c.Suppose P(s₁)= .4,P(s₂)= .3,and P(s₃)= .3.Which decision should Paul make? Compare with the decision using the expected value approach.

The Dollar Department Store chain has the opportunity of acquiring either 3,5,or 10 leases from the bankrupt Granite Variety Store chain.Dollar estimates the profit potential of the leases depends on the state of the economy over the next five years.There are four possible states of the economy as modeled by Dollar Department Stores and its president estimates P(s₁)= .4,P(s₂)= .3,P(s₃)= .1,and P(s₄)= .2.The utility has also been estimated.Given the payoffs (in $1,000,000's)and utility values below,which decision should Dollar make? Utility Table Payoff ( in \ 1,000,00s) +10 +5 +2 0 -1 -10 -20 Utility +10 +5 +2 0 -1 -20 -50

Which of the following statements about a dominated strategy is false?

When the payoffs become extreme,most decision makers are satisfied with the decision that provides the best expected monetary value.

For a two-person,zero-sum,mixed-strategy game,each player selects its strategy according to

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

The expected utility approach

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: Company management has determined the following utility values: Success Failure Produce \ 250,000 -\ 300,000 Do Not Produce -\ 50,000 -\ 20,000 Amount \ 250,000 -\ 20,000 -\ 50,000 -\ 300,000 Utility 100 60 55 0 a.Is the company a risk taker,risk averse,or risk neutral? b.What is Super Cola's optimal decision?