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

The following payoff table shows the profit for a decision problem with two states of nature and two decision alternatives:

State of Nature Decision Alternative di dz 10 1 4 3

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?

State of Nature Decision Alternative di dz 10 1 4 3

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