Calculate the expected values of all alternatives

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Reference no: EM13105066

For the payoff table below, the decision maker will use P(s1) = .15, P(s2) = .5, and P(s3) = .35.

State of Nature

Decision

s1

s2

s3

d1

-5,000

1,000

10,000

d2

-15,000

-2,000

40,000

a.      Calculate the expected values of all alternatives. What alternative would be chosen according to expected value?

b.      For a lottery having a payoff of 40,000 with probability p and -15,000 with probability (1-p), the decision maker expressed the following indifference probabilities.

Payoff

Probability

10,000

.85

1,000

.60

-2,000

.53

-5,000

.50

c.      
Calculate the Expected Utility for all alternatives

d.      What alternative would be chosen according to expected utility?

 

 

Reference no: EM13105066

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