Below you are given an income payoff table involving three decision alternatives and two states of nature. The probability of the occurrence of s₁ = .3. The expected value of the best alternative is A) 12.9. B) 13.2. C) 10.2. D) 28.0.

Question

Quizplus · Accepted Answer

To determine the best choice, we need to calculate the expected payoff for each decision alternative and choose the one with the highest expected payoff.

For decision alternative 1 (D1), the expected payoff is:
(.7)(10) + (.3)(11) = 10.3

For decision alternative 2 (D2), the expected payoff is:
(.7)(12) + (.3)(11) = 11.3

For decision alternative 3 (D3), the expected payoff is:
(.7)(5) + (.3)(28) = 10.9

Therefore, the best choice is decision alternative 2 with an expected payoff of 11.3.

Below You Are Given an Income Payoff Table Involving Three