Question

John is planning to carry out projects in any of the following: Timber (T), Air Conditioners (A), Car Sales (C) and Horticulture (H). Experience has shown that the three states of nature prevailing are: Poor (P), Stable (S) and Good (G) economic conditions. The payoff table below shows the most likely returns of each investment type under each state of nature. The values are millions of Pula and the probabilities are supplied for each state of nature. P S G T 40 30 60 A 50 70 33 C 80 55 62 H 62 53 100 Probabilities 0.20 0.50 0.30 Required Advise John on what decision alternative to choose if he: a. Is optimistic. b. Is pessimistic.

Answer 1