The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature: State of Nature Decision Alternative S1 S2 S3 d1 200 150 150 d2 250 150 100 The probabilities for the states of nature are P(s1) = 0.55, P(s2) = 0.25, and P(s3) = 0.2. (a) What is the optimal decision strategy if perfect information were available? S1 : S2 : S3 : (b) What is the expected value for the decision strategy developed in part (a)? If required, round your answer to one decimal place. (c) Using the expected value approach, what is the recommended decision without perfect information? What is its expected value? If required, round your answer to one decimal place. (d) What is the expected value of perfect information? If required, round your answer to one decimal place.
The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature: State of Nature Decision Alternative S1 S2 S3 d1 200 150 150 d2 250 150 100 The probabilities for the states of nature are P(s1) = 0.55, P(s2) = 0.25, and P(s3) = 0.2. (a) What is the optimal decision strategy if perfect information were available? S1 : S2 : S3 : (b) What is the expected value for the decision strategy developed in part (a)? If required, round your answer to one decimal place. (c) Using the expected value approach, what is the recommended decision without perfect information? What is its expected value? If required, round your answer to one decimal place. (d) What is the expected value of perfect information? If required, round your answer to one decimal place.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature:
| State of Nature | |||
| Decision Alternative | S1 | S2 | S3 |
| d1 | 200 | 150 | 150 |
| d2 | 250 | 150 | 100 |
The probabilities for the states of nature are P(s1) = 0.55, P(s2) = 0.25, and P(s3) = 0.2.
| (a) | What is the optimal decision strategy if perfect information were available? | ||||||
|
|||||||
| (b) | What is the expected value for the decision strategy developed in part (a)? If required, round your answer to one decimal place. | ||||||
| (c) | Using the expected value approach, what is the recommended decision without perfect information? | ||||||
| What is its expected value? If required, round your answer to one decimal place. | |||||||
| (d) | What is the expected value of perfect information? If required, round your answer to one decimal place. | ||||||
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