Below you are given a profit payoff table involving three decision alternatives and three states of nature. The probability of occurrence of s₁ is .1 and the probability of occurrence of s₂ is .3.
The recommended decision alternative based on the expected value is

Question

Below you are given a profit payoff table involving three decision alternatives and three states of nature.

The probability of occurrence of s₁ is .1 and the probability of occurrence of s₂ is .3.
The recommended decision alternative based on the expected value is

Quizplus · Accepted Answer

To find the expected value of each decision alternative, we multiply the payoff of each state of nature by its probability and sum the results.

For decision alternative A: (0.1)(200) + (0.3)(100) + (0.6)(0) = 50

For decision alternative B: (0.1)(150) + (0.3)(40) + (0.6)(0) = 33

For decision alternative C: (0.1)(120) + (0.3)(0) + (0.6)(-50) = -18

Therefore, decision alternative A has the highest expected value and is the recommended choice.

Below You Are Given a Profit Payoff Table Involving Three