Question

How much should be paid for a perfect forecast of the state of nature? Using the...

How much should be paid for a perfect forecast of the state of nature? Using the data below.

States of Nature

Alternatives

A

B

Alternative 1

100

150

Alternative 2

200

120

Probability

0.4

0.6

Group of answer choices

170

30

18

130

152

Math   Statistics-And-Probability   
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Homework Answers

Answer #1

CORRECR ANSWER=18

expected value of alternative 1 =100*0.4+150*0.6=130

expected value of alternative 2 =200*0.4+120*0.6=152

therefore expected value without perfect information =max(130,152) =152

expected value with perfect information =200*0.4+150*0.6=170

therefore expected value of perfect information =170-152 =18

option B is correct

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