### Decision Making Under Risk#### Section 2C: Decision Making Under RiskUse spreadsheet software to complete these calculations.For each problem, find the following:(a) Best Expected Monetary Value (EMV),(b) Expected Value of Perfect Information (EVPI), and (c) Minimum Expected Opportunity Loss (EOL).#### Example Problem:1. An investor may choose one group of investments, selecting from the following options: - Safe Group - Average Group - Risky GroupThe consumer demand may vary with the following probabilities: - Low demand (probability 0.5) - Medium demand (probability 0.1) - High demand (probability 0.4)The respective payoffs for each group and demand scenario are shown in the table below:| Demand Level | Safe Group | Average Group | Risky Group ||--------------|------------|---------------|-------------|| Low | 10 | -1 | -8 || Medium | 12 | 5 | -3 || High | 14 | 18 | 36 |From this table, you will calculate the Best EMV, EVPI, and Minimum EOL. This exercise helps in understanding how to make decisions under risk by incorporating probabilities and payoffs into the decision-making process.

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For each problem, find the (a) Best EMV, (b) EVPI, and (c) Minimum EOL. 1. An investor may make one group of investments and can chose from a safe group, average group, or risky group. The consumer demand may be low (probability 0.5), medium (probability 0.1) or high (probability 0.4). They payoffs are in the table below.

For each problem, find the (a) Best EMV, (b) EVPI, and (c) Minimum EOL. 1. An investor may make one group of investments and can chose from a safe group, average group, or risky group. The consumer demand may be low (probability 0.5), medium (probability 0.1) or high (probability 0.4). They payoffs are in the table below.

MATLAB: An Introduction with Applications

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ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

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Concept explainers

Correlation

Correlation defines a relationship between two independent variables. It tells the degree to which variables move in relation to each other. When two sets of data are related to each other, there is a correlation between them.

Linear Correlation

A correlation is used to determine the relationships between numerical and categorical variables. In other words, it is an indicator of how things are connected to one another. The correlation analysis is the study of how variables are related.

Regression Analysis

Regression analysis is a statistical method in which it estimates the relationship between a dependent variable and one or more independent variable. In simple terms dependent variable is called as outcome variable and independent variable is called as predictors. Regression analysis is one of the methods to find the trends in data. The independent variable used in Regression analysis is named Predictor variable. It offers data of an associated dependent variable regarding a particular outcome.

Question

### Decision Making Under Risk

#### Section 2C: Decision Making Under Risk

Use spreadsheet software to complete these calculations.

For each problem, find the following:
(a) Best Expected Monetary Value (EMV),
(b) Expected Value of Perfect Information (EVPI), and
(c) Minimum Expected Opportunity Loss (EOL).

#### Example Problem:

1. An investor may choose one group of investments, selecting from the following options:
- Safe Group
- Average Group
- Risky Group

The consumer demand may vary with the following probabilities:
- Low demand (probability 0.5)
- Medium demand (probability 0.1)
- High demand (probability 0.4)

The respective payoffs for each group and demand scenario are shown in the table below:

| Demand Level | Safe Group | Average Group | Risky Group |
|--------------|------------|---------------|-------------|
| Low | 10 | -1 | -8 |
| Medium | 12 | 5 | -3 |
| High | 14 | 18 | 36 |

From this table, you will calculate the Best EMV, EVPI, and Minimum EOL. This exercise helps in understanding how to make decisions under risk by incorporating probabilities and payoffs into the decision-making process.

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