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The following payoff table shows a profit for a decision analysis problem with two decision alternatives...

The following payoff table shows a profit for a decision analysis problem with two decision alternatives and three states of nature. In order to get full credit, show your all work done step by step including cell calculations using excel functions.

State of Nature
Decion Alternatives s1 s2 s3
d1 250 100 50
d2 100 75

100

a) Construct a decision tree for this problem.

b) Suppose that the decision-maker obtains the probabilities P(s1)=0.65, P(s2)=0.15, and P(s3)=0.20.

Use the expected value approach to determine the optimal decision.

Math   Statistics-And-Probability   
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Homework Answers

Answer #1

a)

b)

expected value for decision 1 (d1)=               250*0.65+100*0.15+50*0.2=           187.5
                          
expected value for decision 2 (d2) =                100*0.65+75*0.15+100*0.2=           96.25
since,    E(d1)>E(d2), recommeded decision is d1                      
its expected value=   187.5                      

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