The expected opportunity loss of the best decision alternative is the
A)expected value
B)payoff
C)expected value of perfect information
D)None of the answers are correct.

Question

Quizplus · Accepted Answer

The expected opportunity loss (EOL) is a measure of the potential loss associated with choosing a suboptimal decision alternative. It is calculated as the difference between the payoff of the best decision alternative and the payoff of each of the other decision alternatives, weighted by the probability of that alternative occurring. The expected value (A) is the sum of the payoffs of each decision alternative weighted by the probability of that alternative occurring. The payoff (B) is the amount of benefit or cost associated with a particular decision alternative. Thus, the best choice is to calculate the expected value of perfect information (C), which is the potential increase in expected value that could be achieved if perfect information were available to inform the decision-making process. By calculating this value, the decision-maker can determine whether the cost of obtaining additional information is worth the potential increase in expected value.

The Expected Opportunity Loss of the Best Decision Alternative Is