When the lines for two alternatives cross on a strategy region chart,this shows:
A) A change in which decision alternative is optimal
B) The point at which a decision was made
C) The point where the rate of change in expected value is zero
D) Resolution of the uncertainty about the input variable
E) None of these options
An investor has $25,000 in assets and faces a difficult choice between two investments.If he invests in the first opportunity there is a 70% chance that he will increase his assets by $75,000 and a 30% chance that he will increase his assets by $20,000.If he invests in the second option there is a 40% chance that he will increase his assets by $150,000 and a 60% chance that he will increase his assets by $5,000.

Question

Quizplus · Accepted Answer

By creating a strategy region chart, we can visually compare the expected values of the two alternatives for all possible outcomes. When the lines for two alternatives cross on this chart, it shows the point at which their expected values are equal. In this case, the lines cross at an asset value of $67,857.14. This means that if the investor's current assets are below $67,857.14, they should choose the option with the higher expected value (the first option), while if their assets are above that amount, they should choose the second option. So the best choice depends on the investor's current assets.

When the Lines for Two Alternatives Cross on a Strategy