Question

Miles is considering buying a new pickup truck for his lawn service firm. The economy in town seems to be growing, and he is wondering whether he should opt for a subcompact, compact, or full-size pickup truck. The smaller truck would have better fuel economy, but would sacrifice capacity and some durability. A friend at the Bureau of Economic Research told him that there is a 30% chance of lower gas prices in his area this year, a 20% chance of higher gas prices, and a 50% chance that gas prices will stay roughly unchanged. Based on this information, Miles has developed a decision table that indicates the profit amount he would end up with after a year for each combination of truck and gas prices. Develop a decision tree for this situation and indicate which type of truck he should select.

States of nature   

Lower gas prices, Gas prices unchanged, Higher gas prices

probability : (.3, .5, .2)

Alternatives: Subcompact( 16000, 19000, 21000 )Compact (15000, 20000, 22000) Full size( 24000, 19000, 6000)

Answer 1

Based oh highest EMV, the compact truck must be selected.