Question

Consider the following Profit Payoff Table: State of Nature Decision Alternative S1 S2 S3 d1 250...

Consider the following Profit Payoff Table:

State of Nature

Decision Alternative

S1

S2

S3

d1

250

100

25

d2

100

100

75

The probabilities for the states of nature are

P(S1) = 0.65,

P(S2) = 0.15, and

P(S3) = 0.20.

  1. What is the optimal decision strategy if perfect information were available?
  2. What is the expected value for the decision strategy developed in part (a)?
  3. Using the expected value approach, what is the recommended decision without perfect information? What is its expected value?
  4. What is the expected value of perfect information?
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