Question

QUESTION 40 There are two states of the world. In state 1, you get $100. In state 2, you get $50. Assuming rationality, and the expected return is $87.50, what is the probability state 1 occurs? 0.25 O 0.5 0.75 0 1 QUESTION 41 What is the value of information in a world of uncertainty? The decrease in the certainty equivalent The gain in profit from selling more units The increase in expected utility from a changed decision based on information The option price minus the option value Save All Ans I llure to sell nurs

Answer 1

value of information is actually used to measure the expected return or expected utility from the available data and it can be computed that when a decision is altered what would be the change in the expected utility as per the presented data on the whole and thus reduces the level of uncertainty and increases the certainity level all in all

Probability State - n. Probability of state 2 (1-2) E(x) = Ep Xi x (100) + (1-x) 50 = 87.5 - 50x + 50 = 87.5 1 2 = 37.5/50 +0.75 to (c) 0.75 is the answer this question

Therefore (c) the increase in expected utility from a changed decision based on information is the answer to this question