Quizzes > Test 2 2 Mar 20 at 9:12pm Instructions Instructions Question 6 5 pts S

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Quizzes > Test 2 2 Mar 20 at 9:12pm Instructions Instructions Question 6 5 pts Suppose we are interested in investing in one of three investment opportunities: d1, d2, or d3. The following profit payoff table shows the profits (in thousands of dollars) under each of the 3 possible economic conditions: s1, s2, and s3. The probability of s1 is 0.1, and the probability of s2 is 0.3. Determine the expected value of perfect information. State of Nature Decision $1 d1 d2 d3 30 28 17 19 16 40 21.9 O 28.2 O 3.7 O None of the stated answers is correct O 31.9

Explanation / Answer

Answer is 28.2

Out of three investment opportunites , D1 can be selected as it is giving high profits.

Determination of Expected value of perfect Information State of nature (In thousands of dollars) Decision $1 $2 $3 Total D1 1.8 8.4 18 28.2 (18X0.1) (28X0.3) (30X0.6) D2 1.9 5.1 -3 4 (19X0.1) (17X0.3) (-5X0.6) D3 0.3 12 9.6 21.9 (3X0.1) (40X0.3) (16X0.6)

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