Heading: Analyzing Risky Decisions
**Reference: Use the decision tree along with the given probabilities to answer the next six questions
Probability Event A = 30% Probability Event B = 70%
Probability Event 1 = 58% Probability Event 2 = 42%
Probability of Event A given that Event 1 occurs = 16%
Probability of Event B given that Event 1 occurs = 84%
Probability of Event A given that Event 2 occurs = 50%
Probability of Event B given that Event 2 occurs = 50%

-*If the decision maker chooses Decision A and Event 1 occurs, which decision alternative should the decision maker choose at node D?
A)Decision 1
B)Decision 2
C)Either Decision; they both have the same expected value.
D)Neither Decision; more information is needed.

Question

Heading: Analyzing Risky Decisions
**Reference: Use the decision tree along with the given probabilities to answer the next six questions 
Probability Event A = 30% Probability Event B = 70%
Probability Event 1 = 58% Probability Event 2 = 42%
Probability of Event A given that Event 1 occurs = 16%
Probability of Event B given that Event 1 occurs = 84%
Probability of Event A given that Event 2 occurs = 50%
Probability of Event B given that Event 2 occurs = 50%
 
-*If the decision maker chooses Decision A and Event 1 occurs, which decision alternative should the decision maker choose at node D?
A)Decision 1 
B)Decision 2 
C)Either Decision; they both have the same expected value. 
D)Neither Decision; more information is needed.

Quizplus · Accepted Answer

If Decision A is chosen and Event 1 occurs, the expected value of Decision 1 is higher than that of Decision 2.

Expected value of Decision 1: 
0.3 * 0.58 * $70,000 = $12,156

Expected value of Decision 2: 
0.3 * 0.58 * $60,000 + 0.3 * 0.42 * $80,000 = $11,736

Therefore, the decision maker should choose Decision 1.