The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature. Decision Alternative States of Nature s1 s2 s3 d1 240 90 15 d2 90 90 65 Suppose that the decision maker obtained the probabilities P(s1) = 0.65, P(s2) = 0.15, and P(s3) = 0.20. Use the expected value approach to determine the optimal decision. EV(d1) = EV(d2) = The optimal decision is ?
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature.
| Decision Alternative |
States of Nature | ||
|---|---|---|---|
|
s1 |
s2 |
s3 |
|
|
d1 |
240 | 90 | 15 |
|
d2 |
90 | 90 | 65 |
Suppose that the decision maker obtained the probabilities
P(s1) = 0.65, P(s2) = 0.15,
and
P(s3) = 0.20.
Use the
EV(d1) =
EV(d2) =
The optimal decision is ?
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