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You are given a table with stocks and there possible payoffs (i.e. 60 payoff will indicate a $60 profit on every $1,000 invested) under
You are given a table with stocks and there possible payoffs (i.e. 60 payoff will indicate a $60 profit on every $1,000 invested) under each market scenario. Let us assume the probability each market would be turned out is 1/3. Stock Intel Microsoft Disney Shell AT&T Market Scenario Bull Market -30 0 60 30 -20 Mediocre 90 50 40 -10 -60 Please answer to the following statements. 1) Suppose you apply "optimistic" approach, what is your choice? 2) Suppose you apply "minimax regret" approach, what is your choice? 3) Suppose you apply "expected value" approach, what is your choice? Bear Market 40 10 0 -70 40
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To answer your questions lets analyze each approach one by one 1 Optimistic Approach The optimistic approach aims to maximize the potential payoff by selecting the option that offers the highest bestc...
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Microeconomics An Intuitive Approach with Calculus
Authors: Thomas Nechyba
1st edition
538453257, 978-0538453257
