Question

A company is considering advertising its new product on TV on Super Bowl Sunday.

Let d₁, d₂ and d₃ represent its decision to purchase one, two or three 30-second commercials respectively.
Dependent on whether the game is S₁ = “Dull,” S₂ =“Average”, S₃ =“Above average,” or S₄ = “Exciting,” their probabilities and profits are as follows:

	S1	S2	S3	S4
Probability	0.1	0.3	0.4	0.2
d1	5	12	10	8
d2	-5	6	12	12
d3	7	14	-6	13

The expected pay-off of the best decision would be:

Select one:

a. 7.6

b. 9.7

c. 12.3

d. 8.3

Answer 1

Multiply probabilities with each alternatives and select the best d with maximum expecetd value

	s1	s2	s3
Probability	0.1	0.3	0.4	0.2
d1	5	12	10	8
d2	-5	6	12	12
d3	7	14	-6	13

For d1,expected pay off is  5*0.1+12*0.3+10*0.4+8*0.2=  9.7

For d2,expected pay off is -5*0.1+6*0.3+12*0.4+12*0.2=   8.5

For d3,expected pay off is 7*0.1+14*0.3-6*0.4+13*0.2=5.1

expected value is maximum for d1

best decision=d1

and expected payoff =9.7

ANSWER;

The expected pay-off of the best decision would be:9.7