Consider the following payoff table:

Action

Event................... A ($)............. B ($)

1 ............................50................ 10

2 ...........................300............... 100

3 ...........................500...............200

For this problem, P(E1) = 0.8, P(E2) = 0.1,P(E3) = 0.1,

P(F|E1) = 0.2, P(F|E2) = 0.4, and P(F|E3) = 0.4. Suppose you are informed that event F occurs.

a. Revise the probabilities P(E1), P(E2), and P(E3) now that you know that event F has occurred. Based on these revised probabilities, answer (b) through (i).

b. Compute the expected monetary value of action A and action B.

c. Compute the expected opportunity loss of action A and action B.

d. Explain the meaning of the expected value of perfect information (EVPI) in this problem.

e. On the basis of (b) and (c), which action should you choose? Why?

f. Compute the coefficient of variation for each action.

g. Compute the return-to-risk ratio (RTRR) for each action.

h. On the basis of (f) and (g), which action should you choose? Why?

i. Compare the results of (e) and (h) and explain any differences.