In constructing a payoff table to compute the cost of uncertainty, which of the following defines the correct order of steps taken?
A) Add the probabilities, compute the expected value for each decision, and determine the best decision using expected-value decision criterion.
B) Compute the expected value for each decision alternative, calculate the probabilities, and determine the best decision using expected-value decision criterion.
C) Add the probabilities and determine the best decision using expected-value decision criterion.
D) Add the probabilities, compute the expected value for each decision, and determine the best decision using highest values.

Question

Quizplus · Accepted Answer

The correct order involves adding probabilities to each state of nature, computing the expected value for each decision alternative based on those probabilities, and then determining the best decision using the expected-value decision criterion. This process allows for a systematic evaluation of different decisions under uncertainty by leveraging the probabilities of various outcomes.

In Constructing a Payoff Table to Compute the Cost of Uncertainty