Dan Hein owns the mineral and drilling rights to a 1,000 acre tract of land.If he drills a well and does not strike oil, his net loss will be $50,000, but if he drills a well and strikes oil, his net gain will be $100,000.If he does not drill, his loss is the cost of the mineral and drilling rights, which amount to $1000.For Dan's decision problem, the variable "net loss of $50,000" is one of the ___________.
A)payoffs
B)decision alternatives
C)states of nature
D)revised probabilities
E)prior probabilities

Question

Quizplus · Accepted Answer

The "net loss of $50,000" is considered a payoff because it represents a potential outcome or financial result of making a specific decision, in this case, the outcome of drilling a well and not finding oil. Payoffs are the results associated with different combinations of decision alternatives and states of nature.

Dan Hein Owns the Mineral and Drilling Rights to a 1,000