Exhibit 14.1
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem.
-Probabilistic decision rules can be used if the states of nature in a decision problem can be assigned probabilities that represent their likelihood of occurrence. Which of the following is not true regarding the probabilities employed?
A) The probabilities are always obtained from historical data.
B) The probabilities must always be unbiased.
C) The probabilities can be assigned subjectively.
D) Subjective probabilities obtained can be accurate and unbiased.

Question

Exhibit 14.1
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C and leaving his money in the bank. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following payoff matrix has been developed for the decision problem. 
-Probabilistic decision rules can be used if the states of nature in a decision problem can be assigned probabilities that represent their likelihood of occurrence. Which of the following is not true regarding the probabilities employed?
A) The probabilities are always obtained from historical data. 
B) The probabilities must always be unbiased. 
C) The probabilities can be assigned subjectively. 
D) Subjective probabilities obtained can be accurate and unbiased.

Quizplus · Accepted Answer

The statement "The probabilities are always obtained from historical data" is not true. Probabilities can also be estimated using other methods such as expert judgment, simulation models, or market-based approaches.

Exhibit 14.1 The Following Questions Are Based on the Information Below