Exhibit 21-1
Below you are given a payoff table involving two states of nature and three decision alternatives. The probability of occurrence of S 1 = 0.2.
-Refer to Exhibit 21-1. The recommended decision alternative based on the expected monetary value is
A)A
B)B
C)C
D)All alternatives are the same.

Question

Exhibit 21-1
Below you are given a payoff table involving two states of nature and three decision alternatives.  The probability of occurrence of S 1 = 0.2.
-Refer to Exhibit 21-1. The recommended decision alternative based on the expected monetary value is
A)A 
B)B 
C)C 
D)All alternatives are the same.

Quizplus · Accepted Answer

The expected monetary value (EMV) for alternative A is (0.3 x 100) + (0.7 x 0) = 30. The EMV for alternative B is (0.2 x 80) + (0.8 x 0) = 16. The EMV for alternative C is (0.3 x 40) + (0.7 x 0) = 12. Based on the EMV criterion, alternative B has the highest expected return, making it the recommended decision alternative.

Exhibit 21-1 Below You Are Given a Payoff Table Involving Two States