Expected Monetary Value (EMV).
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
Related questions
Question
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I need to make a decision tree for this case study, but I'm unsure how to make the decision table. Also, I'm unsure how to find the Expected Monetary Value (EMV).

Transcribed Image Text:Case Studies
> Probability Analysis by the National Institute for Liver Diseases
Ahmed Jamil, a robust 50-year-old real estate consultant living in the
suburbs of Alexandria, Egypt, has been diagnosed by a specialist at
the National Institute for Liver Diseases (Menofya) in Shebeen el
Koum as having a decaying liver. Although he is otherwise healthy,
Ahmed's liver problem could prove fatal if left untreated.
Firm research data are not yet available to predict the likeli-
hood of survival for a man of Ahmed's age and condition who
does not have surgery. However, based on his own experience
and recent medical journal articles, the internist tells him that if
he elects to avoid surgical treatment of the liver problem,
chances of survival will be approximately as follows: only a 60%
chance of living 1 year, a 20% chance of surviving for 2 years, a
10% chance for 5 years, and a 10% chance of living to age 58.
He places his probability of survival beyond age 58 without a
liver transplant to be extremely low.
The transplant operation, however, is a serious surgical
procedure. Five percent of patients die during the operation or
its recovery stage, with an additional 45% dying during the
first year. Twenty percent survive for 5 years, 13% survive for
10 years, and 8%, 5%, and 4% survive, respectively, for 15, 20, and
25 years.
Discussion Questions
1. Do you think that Ahmed should select the transplant operation?
2. What other factors might be considered?
Expert Solution

Explanation
Decision tree is a managerial tool which helps the decision maker find highest probable decision based in visualised manner. EMV indicating the possible return based on the probability of all state of nature. Based in the all available information, we can construct the decision tree and identify the EMV like given below.
Step by step
Solved in 2 steps with 2 images

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