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An investor is considering how to invest his money. He has two options ? either a domestic mutual fund that only invests in the Capital

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An investor is considering how to invest his money. He has two options ? either a domestic mutual fund that only invests in the Capital Goods sector or an international aggressive mutual fund that invests in promising startups in the Commercial & Professional Services sector. The payoff (profit) after one year for these investments depends on the state of economy. The investor thinks that there is 0.5 probability that the economy will improve and 0.5 probability that economy will decline. The estimated payoffs are shown in the table below.

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State of the Economy Economy Improves Economy Declines (0.50) (0.50) Dom. Fund 2,100 1,100 Decision Int. Fund 5,700 -2,300Probability Revisions given a Favourable Report Joint Posterior Probability Probability P(State of NaturefFav.) Economy Declines Economy Improves P(Favourable) = C] P{Economic Improvement | Favourable report) 2 C] (b) Use this information to fill in the following revised probability table for an unfavourable report. Probability Revisions given an Unfavourable Report State of Prior Conditional Probability Joint Posterior Probability Nature Probability P(Unfav. /State of Nature) Probability P(State of Nature/Unfav.) Economy Declines Economy Improves P(Unfavourable) = 1.0000 P(Economic Improvement | Unfavourable report) =

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