TABLE 19-6
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to study every week for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.

-Referring to Table 19-6, the optimal strategy using the expected monetary value criterion is to study 16 hours per week on average for the exam.

Question

TABLE 19-6
A student wanted to find out the optimal strategy to study for a Business Statistics exam. He constructed the following payoff table based on the mean amount of time he needed to study every week for the course and the degree of difficulty of the exam. From the information that he gathered from students who had taken the course, he concluded that there was a 40% probability that the exam would be easy.
 
-Referring to Table 19-6, the optimal strategy using the expected monetary value criterion is to study 16 hours per week on average for the exam.

Quizplus · Accepted Answer

To find the expected monetary value for each possible combination of weekly study hours and exam difficulty, the student multiplied the probability of each difficulty level by the corresponding payoff and then summed the products. By choosing the study hours with the highest expected monetary value, the student maximizes his expected payoff, which in this case is the likelihood of getting a high grade. The highest expected monetary value in the table is $3,840, which corresponds to studying 16 hours per week on average for an exam that is easy (40% probability). Therefore, the optimal strategy using the expected monetary value criterion is to study 16 hours per week on average for the exam.

TABLE 19-6 a Student Wanted to Find Out the Optimal Strategy to Strategy