# Question: Many decision problems have the following simple structure A decision

Many decision problems have the following simple structure. A decision maker has two possible decisions, 1 and 2. If decision 1 is made, a sure cost of c is incurred. If decision 2 is made, there are two possible outcomes, with costs c1 and c2 and probabilities p and 1 - p. We assume that c1 < c < c2. The idea is that decision 1, the riskless decision, has a moderate cost, whereas decision 2, the risky decision, has a low cost c1 or a high cost c2.

a. Find the decision maker’s cost table, that is, the cost for each possible decision and each possible outcome.

b. Calculate the expected cost from the risky decision.

c. List as many scenarios as you can think of that have this structure.

a. Find the decision maker’s cost table, that is, the cost for each possible decision and each possible outcome.

b. Calculate the expected cost from the risky decision.

c. List as many scenarios as you can think of that have this structure.

## Answer to relevant Questions

A nuclear power company is deciding whether to build a nuclear power plant at Diablo Canyon or at Roy Rogers City. The cost of building the power plant is $10 million at Diablo and $20 million at Roy Rogers City. If the ...One controversial topic in basketball (college or any other level) is whether to foul a player deliberately with only a few seconds left in the game. Specifically, consider the following scenario. With about 10 seconds left ...A city in Ohio is considering replacing its fleet of gasoline-powered automobiles with electric cars. The manufacturer of the electric cars claims that this municipality will experience significant cost savings over the life ...Suppose an investor has the opportunity to buy the following contract, a stock call option, on March 1. The contract allows him to buy 100 shares of ABC stock at the end of March, April, or May at a guaranteed price of $50 ...Another type of random sample is called a bootstrap sample. Given a data set with n observations, a bootstrap sample, also of size n, is when you randomly sample from the data set with replacement. To do so, you keep ...Post your question