Consider once again the R&D strategies of the pharmaceutical company. Suppose the company's management is risk averse and has assessed the following utility values for the set of possible outcomes (in millions of dollars).
|
Outcome
$200
|
Utility
100
|
Outcome
$70
|
Utility
59
|
|
180
|
95
|
60
|
55
|
|
170
|
92
|
50
|
50
|
|
100
|
71
|
40
|
44
|
|
80
|
64
|
20
|
32
|
|
|
|
0
|
0
|
Compute the expected utility of pursuing the biochemical approach alone. Next, find the expected utility of pursuing the biogenetic approach first, then continuing with the biochemical approach if necessary. In light of these calculations, what action do you recommend for the company?
How has the company's risk aversion influenced its decision?