Suppose that a car-rental agency offers insurance for a week that costs $75. A minor fender bender will cost $2,000, whereas a major accident might cost $16,000 in repairs. Without the insurance, you would be presonally liable for damages. What should you do? Clearly, there are two decision alternatives: take the insurance, or do not take the insurance. The uncertain consequences, or events that might occur, are that you would not be involved in an accident, that you woud be involved in a fender bender, or that you would be involved in a major accident. Develop a payoff table for this situation. What decision shoud you make using each strategy?

a. aggressive strategy

b. conservative strategy

c. opportunity-loss strategy

Assume that you researched insurance industry statistics and found out that the probability of a major accident is 0.05% and that the probability of a fender bender is 0.16%. What is the expected value decision? Would you choose this? Why or why not?

Construct a decision tree and compute the rollback values to find the bes expected value decision.