Question

You are trying to get the most out of playing with a genie. He says that...

You are trying to get the most out of playing with a genie. He says that you have two options: choose a hand that contains three gold coins or choose a hand that contains one gold and two silver. You will be paid $500 for each gold coin and $100 for each silver coin in the hand that you choose. Before choosing, you may pay the genie $200 and the genie will put on the table a randomly selected coin and tell you whether its gold or silver and which hand it comes from (example: “gold coin from left hand”).

a. What is the optimal decision policy? (draw the payoff table, Bayes’ decision rule table, and maximum payoff table)

b. What is the EVPI?

c. Draw the posterior probability tree

d. Should you pay the Genie $200?

e. What is the EVE?

f. Draw the decision tree

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