he following profit payoff table shows profit for a decision analysis problem wi

Question

he following profit payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature:

The probabilities for the states of nature are P(s1) = 0.5, P(s2) = 0.3 and P(s3) = 0.2.

What is the optimal decision strategy if perfect information were available?

What is the expected value for the decision strategy developed in part (a)? If required, round your answer to one decimal place.

Using the expected value approach, what is the recommended decision without perfect information?

d2

What is its expected value? If required, round your answer to one decimal place.

What is the expected value of perfect information? If required, round your answer to one decimal place.

Explanation / Answer

expected value for the decision strategy developed in part a = 250 X 0.5 + 150 X 0.3 + 75 X 0.2

expected value for the decision strategy developed in part a = 185

The recommended decision without perfect information = d2

The expected value without perfect information = 250

the expected value of perfect information = The expected value perfect information - expected value without perfect information

the expected value of perfect information = 185 - 250

the expected value of perfect information = -65

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