Exhibit 21-4
Below you are given a payoff table involving two states of nature and three decision alternatives. The probability of the occurrence of S 1 = 0.3.
-Refer to Exhibit 21-4. The expected value of the best alternative is
A)12.9
B)13.2
C)10.2
D)28.0

Question

Exhibit 21-4
Below you are given a payoff table involving two states of nature and three decision alternatives.  The probability of the occurrence of S 1 = 0.3.
-Refer to Exhibit 21-4. The expected value of the best alternative is
A)12.9 
B)13.2 
C)10.2 
D)28.0

Quizplus · Accepted Answer

To calculate the expected value for each decision alternative, we multiply the payoffs by their respective probabilities and then add them up.

For Decision Alternative 1: 
EV1 = (0.7*20) + (0.3*30) = 21

For Decision Alternative 2: 
EV2 = (0.7*25) + (0.3*10) = 20.5

For Decision Alternative 3: 
EV3 = (0.7*10) + (0.3*15) = 11.5

Therefore, the best alternative is Decision Alternative 1 with an expected value of 21.

Exhibit 21-4 Below You Are Given a Payoff Table Involving Two States