PISP Personal Indifference Selling Price PIBP Personal Indi

PISP- Personal Indifference Selling Price

PIBP - Personal Indifference Buying Price

Sam has just paid $215 for a certificate that allows him to call the flip of \"unfair\" coin. If the calls it correctly, he will win $500. If he calls it incorrectly, he will win $0. His PISP for the certificate is $315. The clairvoyant offers co tell him the outcome of the impending coin toss. What is Sam s PIBP for the clarvoyant\'s information? You do not know anything about Sam\'s risk attitude. $185 Need Sam\'s w-curve to determine h/s PIBP for the information $285 Need Sam\'s w-curve and the probability he assigns to the \"unfair\"coin landing Heads (or Tails) to determine his PIBP for the information For Problems, consider the decision situation given n the following decision tree where the dollar values are winnings and the probabilities are the assessments of the deal\'s owner. Suppose Stuart, who is risk-neutral, owned the deal below. What is Stuart\'s certain equivalent for the deal? 175 200 215 185 What is the most Stuart should pay for clairvoyance on uncertainty D before making decision A? 215 50 30 185 What is the most Stuart should pay for clairvoyance on uncertainty B before making decision A? 25.5 7.5 192.5 185

Solution

i. 175 because it is certain. (As there is no probability indicated)

ii. 50 because (0.5*100)

iii. 185