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.
-Suppose that the regrets for an alternative with three states of nature are: 20, 10, and 0. The probabilities of these states of nature are 0.2, 0.3, and 0.5, respectively. The expected regret for the alternative is equal to
A) 7
B) 20
C) 10
D) 30

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. 
-Suppose that the regrets for an alternative with three states of nature are: 20, 10, and 0. The probabilities of these states of nature are 0.2, 0.3, and 0.5, respectively. The expected regret for the alternative is equal to
A) 7 
B) 20 
C) 10 
D) 30

Quizplus · Accepted Answer

The expected regret is calculated by multiplying each regret by its corresponding probability and then summing these products: (20*0.2) + (10*0.3) + (0*0.5) = 4 + 3 + 0 = 7.

Exhibit 14.1 The Following Questions Are Based on the Information Below