Instruction 17-3
The following payoff matrix is given in dollars.
Suppose the probability of Event 1 is 0.5 and Event 2 is 0.5.
-Referring to Instruction 17-3,what is the optimal action using the expected opportunity loss (EOL)criterion?
A)Action A.
B)Action B.
C)Either Action A or Action B.
D)It cannot be determined.

Question

Quizplus · Accepted Answer

To calculate the expected opportunity loss for each action, we first multiply the payoff for each outcome by its probability and then subtract from the maximum possible payoff for each action.

EOL for Action A: 
(0.5 * -$20) + (0.5 * -$15) = -$17.50

EOL for Action B: 
(0.5 * -$30) + (0.5 * $5) = -$12.50

Therefore, the optimal action according to the EOL criterion is to choose Action B, as it minimizes the expected opportunity loss.

Instruction 17-3 The Following Payoff Matrix Is Given in Dollars