Logical Decisions - Classweb

Figure 7-4. Utility Assessment Screen.
The screen in the figure shows a comparison based on truck resale
values. In the figure, alternative A has a resale value of 60 percent
of purchase price with no uncertainty.
The < lines for alternative B represent an alternative with
uncertainty in the resale value measure. Specifically, B has a
probability of P = .5 of having a resale value of 75 percent of
purchase price and a probability 1 - P = .5 of having a resale value
of 45 percent of purchase price.
The goal of the assessment is to identify values for the certain
level (L) for alternative A and for the probability P in alternative
B that make alternatives A and B equally preferred. LDW will
then use this information to set the level and utility for the active
point in the main preference assessment screen. You can modify
L and P by entering numbers in the associated edit boxes. Click
on the "Done" button to indicate that you have finished and that A
and B are now equally preferred.
The numbers at the bottom of the utility assessment screen are
two parameters that are useful in understanding the utility
assessment results. The first number, the risk premium indicates
how much you would pay to avoid the uncertainty in the lottery.
It is the difference in the expected value of the lottery B and the
certain level L.
If the risk premium is positive and higher levels of the measure
are preferred, then you would be willing to accept less of the
7-12 Section 7 -- Using LDW 2: Assessing