Construct a decision tree for the problem.

Question

The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature: State of Nature Decision Alternative S1 S2 S3 di 250 100 100 d2 200 100 150 The probabilities for the states of nature are P(s1) = 0.45, P(s2) = 0.25, and P(53) = 0.3. (a) What is the optimal decision strategy if perfect information were available? S1 : - Select your answer - V S2 Select your answer - S3 : - Select your answer - V (b) What is the expected value for the decision strategy developed in part (a)? If required, round your answer to one decimal place. (c) Using the expected value approach, what is the recommended decision without perfect information? - Select your answer - v What is its expected value? If required, round your answer to one decimal place. (d) What is the expected value of perfect information? If required, round your answer to one decimal place.

Answer 1

Question

Chapter 21.2, Problem 1E

a.

To determine

Construct a decision tree for the problem.

b.

To determine

Compute the optimal decision using the expected value approach.

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The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature: State of Nature Decision Alternative S1 S2 S3 di 250 100 100 d2 200 100 150 The probabilities for the states of nature are P(s1) = 0.45, P(s2) = 0.25, and P(53) = 0.3. (a) What is the optimal decision strategy if perfect information were available? S1 : - Select your answer - V S2 Select your answer - S3 : - Select your answer - V (b) What is the expected value for the decision strategy developed in part (a)? If required, round your answer to one decimal place. (c) Using the expected value approach, what is the recommended decision without perfect information? - Select your answer - v What is its expected value? If required, round your answer to one decimal place. (d) What is the expected value of perfect information? If required, round your answer to one decimal place.

The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature.

The owner of Catamount Ice Cream needs to decide which size shop to rent in a new strip mall. He estimates that monthly profits will vary with demand for ice cream as follows: High Demand Demand Low Size of Shop Large 1,000 1,300 900 1,400 Medium Small 800 1,500 He feels there is a 40% chance that demand will be low and a 60% chance that demand will be high. He'll use a decision tree to help him decide what to do. When he draws his decision tree, how many circles will there be?