The expected cost of Betaine therapy is $544. It is effective 57 percent of the
ID: 3155156 • Letter: T
Question
The expected cost of Betaine therapy is $544. It is effective 57 percent of the time, with a 6 percent chance of an adverse drug reaction. The following table show data for Alphazine, a new treatment. Estimate the rate of adverse drug reaction and the expected cost of treatment. Use Excel to construct a decision tree for this problem. Should you choose Alphazine or Betazine?
Probability
Cost
Effective
63%
No adverse drug reaction
5%
$700
No adverse drug reaction
95%
$500
Ineffective
37%
Adverse drug reaction
5%
$800
No adverse drug reaction
95%
$600
Probability
Cost
Effective
63%
No adverse drug reaction
5%
$700
No adverse drug reaction
95%
$500
Ineffective
37%
Adverse drug reaction
5%
$800
No adverse drug reaction
95%
$600
Explanation / Answer
expected cost of the efffective of new drug is
0.63 * 0.05 *700 + 0.63*0.95 * 500
$321.3
The expected cost of Betaine therapy is $544
since the expected cost of betain therapy is greater but the new drug is more effective I would choose
the new drug because it has less cost
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