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Chez Paul: Introduction The next few questions refer to this information: Chez Paul is contemplating either opening another restaurant or expanding its existing location. The payoff table for these two decisions is: States of Nature s1 s2 s3 New Restaurant -$80,000 $15,000 $160,000 Expand -$40,000 $15,000 $100,000 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) with the following sure amounts as follows: Amount Indifference Probability (p) -$40,000 0.4 0.7 $15,000 $100,000 0.9 Chez Paul: Part 1 Is Paul a risk avoider, a risk taker, or risk neutral? Why? Chez Paul: Part 2 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, $15,000, and $100,000 based on the indifference probabilities? Chez Paul: Part 3 Suppose P(51) = .4, P(sz) = .3, and P(sz) = .3. Which decision should Paul make? Compare with the decision using the expected value approach.