Exhibit 20-2
Below you are given a payoff table involving three states of nature and two decision alternatives. The probability that S 1 will occur is 0.1; the probability that S 2 will occur is 0.6; and the probability that S 3 will occur is 0.3.
-Refer to Exhibit 20-2. The recommended decision based on the expected value criterion is
A)A
B)B
C)Both alternatives are the same.
D)None of the answers are correct.

Question

Exhibit 20-2
Below you are given a payoff table involving three states of nature and two decision alternatives.  The probability that S 1 will occur is 0.1; the probability that S 2 will occur is 0.6; and the probability that S 3 will occur is 0.3.
-Refer to Exhibit 20-2. The recommended decision based on the expected value criterion is
A)A 
B)B 
C)Both alternatives are the same. 
D)None of the answers are correct.

Quizplus · Accepted Answer

To calculate the expected value for each decision alternative, we multiply each possible outcome by its corresponding probability and sum the results. For decision A, the expected value is (0.1 x 10) + (0.6 x 20) + (0.3 x 30) = 20. For decision B, the expected value is (0.1 x 15) + (0.6 x 15) + (0.3 x 15) = 15. Therefore, based on the expected value criterion, the recommended decision is B as it has a higher expected value.

Exhibit 20-2 Below You Are Given a Payoff Table Involving Three States