Question

If your company makes a particular decision in the face of uncertainty, you estimate that it will either gain $10,000, gain $1,000, or lose $5,000, with probabilities 0.40, 0.30, and 0.30, respectively. You (correctly) calculate the EMV as $2800. However, you distrust the use of this EMV for decision-making purposes. After all, you reason that you will never receive $2,800; you will recieve $10,000, $1,000, or lose $5,000. Discuss this reasoning. As a part of your answer construct a visual decision tree. It can be hand-drawn. Summarize the scenario. Then address the prompt from the scenario. Include proper terminology from chapter 6.

Answer 1