Consider the following decision table in which w, x, y, and z are decision alternatives and A and B are the two possible states of nature, with probabilities 0.40 and 0.60. The expected value for decision Y is ___________.
A) 40
B) 28
C) 50
D) 22
E) 15

Question

Consider the following decision table in which w, x, y, and z are decision alternatives and A and B are the two possible states of nature, with probabilities 0.40 and 0.60.  The expected value for decision Y is ___________.
A) 40 
B) 28 
C) 50 
D) 22 
E) 15

Quizplus · Accepted Answer

To calculate the expected value for each decision alternative, we use the formula:

Expected Value = (Probability of State 1 * Payoff in State 1) + (Probability of State 2 * Payoff in State 2)

For decision Y, the expected value is:

(0.40 * 0) + (0.60 * 56) = 33.6

Therefore, the best choice is Y with an expected value of 33.6.

Note: The other decision alternatives have expected values of:
W: 20
X: 26
Z: 18.4
So, Y is the best choice.

Consider the Following Decision Table in Which W, X, Y