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The following payoff table shows costs that would be incurred based on the decision (DA or DB) and the future unknown states of nature (S1,
The following payoff table shows costs that would be incurred based on the decision (DA or DB) and the future unknown states of nature (S1, S2, S3). Given the probabilities of these future states, what are (a) the recommended decision based on the expected value (EV) criterion and (b) the EV of the recommended decision?
Future State S1 Probability = 0.5 | Future State S2 Probability = 0.3 | Future State S3 Probability = 0.2 | |
Decision DA | $400 | $800 | $1,000 |
Decision DB | $200 | $400 | $1,500 |
options:
a | {a; b} = {DA; 640} |
b | {a; b} = {DA; 733} |
c | {a; b} = {DB; 700} |
d | {a; b} = {DB; 520} |
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