The following payoff table shows the profit for a decision problem with two states of nature and
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Question:
The following payoff table shows the profit for a decision problem with two states of nature and two decision alternatives:
a. Suppose P(s1) = 0.2 and P(s2) = 0.8. What is the best decision using the expected value approach?
b. Perform sensitivity analysis on the payoffs for decision alternative d1. Assume the probabilities are as given in part a, and find the range of payoffs under states of nature s1 and s2 that will keep the solution found in part a optimal. Is the solution more sensitive to the payoff under state of nature s1 or s2?
Related Book For
Data Analysis and Decision Making
ISBN: 978-0538476126
4th edition
Authors: Christian Albright, Wayne Winston, Christopher Zappe
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