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 "oil in the tract" is one of the ___________.
A)payoffs
B)decision alternatives
C)states of nature
D)revised probabilities
E)prior probabilities

Question

Quizplus · Accepted Answer

The variable "oil in the tract" represents an uncertain outcome that affects the decision but is not under the control of the decision-maker, making it a state of nature.

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