Question

Answer the following questions. utility - cost ⇒ will be the payoffs in 1. Suppose you go to a used car lot to buy a car. You can either buy a sedan, which will give you a utility of 10,00,000 or a hatchback, which will give you a utility of 5,00,000, or nothing. The sedan costs 8,00,000 while the hatchback costs 4,00,000. However, if the car turns out to be defective, it will reduce your utility by half. Make a payoff matrix and evaluate various actions that can be taken (Assume the coefficient of optimism to be 0.7) should also use multiple crillrion (3+5=8 Marks)

Answer 1

To create a payoff matrix for the given scenario, we need to consider the different actions (buying a sedan or buying a hatchback) and their corresponding payoffs (utilities). By factoring in the cost of each car and the potential for a defective car, we can determine the action with the highest expected utility using the coefficient of optimism (0.7).

Step-by-step explanation:

To create a payoff matrix for the given scenario, we need to consider the different actions and their corresponding payoffs. In this case, the actions are buying a sedan or buying a hatchback, while the payoff is the utility. The utility of buying a sedan is 10,00,000 and the utility of buying a hatchback is 5,00,000. The cost of the sedan is 8,00,000 and the cost of the hatchback is 4,00,000. However, if the car turns out to be defective, the utility of buying either car will be reduced by half.

Payoff matrix:
Buy SedanBuy HatchbackBuy NothingDefective Car5,00,0002,50,0000 (no cost)No Defective Car10,00,0005,00,0000 (no cost)

Now, we can evaluate the various actions by multiplying the utility with the coefficient of optimism, which is 0.7. By taking into account the potential cost and the chance of a defective car, we can determine the action that provides the highest expected utility.