Question

ected Utility Suppose that a safety agency is thinking of establishing a criterion under which an area prone to flooding should be evacuated The probability of flooding is 1%. There are four possible outcomes: (A): No flood and no evacuation is performed. P (B): No flood but an evacuation is performed. (C): There is a flood and an evacuation is performed. 1- (D): There is a flood but no evacuation is performed. - Suppose that th that the agency is indifferent between the sure outcome B and the lottery of A with probability p and D with probability (1-p). Also assume that is an expected utility maximizer. Suppose further

Answer 1

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