Consider the following decision scenario:
With equally likely states of nature, the alternative that has the largest expected monetary value is:
A) A.
B) B.
C) C.
D) D.
E) E.

Question

Consider the following decision scenario: 
With equally likely states of nature, the alternative that has the largest expected monetary value is:
A) A. 
B) B. 
C) C. 
D) D. 
E) E.

Quizplus · Accepted Answer

The expected monetary value (EMV) of each alternative is calculated by multiplying the payoff of each state of nature by its probability, and then summing up the products. 
For alternative B, the EMV is: (0.3 x 1000) + (0.2 x 2000) + (0.5 x 0) = 300 + 400 + 0 = 700.
For all other alternatives, the EMVs are lower than 700. Therefore, alternative B has the largest expected monetary value and is the best choice.

Consider the Following Decision Scenario