Applying probabilities to a payoff table results in ________.
A)expected opportunity loss for each alternative or act
B)expected monetary value for each alternative or act
C)value of perfect information
D)a decision tree

Question

Quizplus · Accepted Answer

Applying probabilities to a payoff table allows us to calculate the expected monetary value (EMV) for each alternative or act. EMV incorporates both the probability of each outcome and its payoff or cost. It is a useful tool for decision making as it helps us choose the alternative that maximizes expected returns. Therefore, option B is the correct answer. The other options are not a direct result of applying probabilities to a payoff table; expected opportunity loss (A) is the cost of making the wrong decision, value of perfect information (C) is the maximum amount that we would be willing to pay for additional information to improve decision making, and a decision tree (D) is a visual representation of possible outcomes and decisions.

Applying Probabilities to a Payoff Table Results in ________