Discuss decision making under conditions of uncertainty, specifically using expected monetary value.

Expert Solution

The decision making under the conditions of uncertainty -

Uncertainty : A condition of uncertainty is said to exist when the outcome of a decision is said to be taken under the risk or Uncertainty.

• Decision making under uncertainty involves computation of expected value for each strategy.

• The strategy which has the highest expected value is considered as first preference.

• When there is a condition in which two or more strategy show same expected value, then the decision is made based on the the degree of uncertainty involves in both of the strategies.

• Degree of uncertainty shows the extent to which the pay-off of a strategy deviated from the expected value. The degree of uncertainty can be accumulated with the help of the variatiiv in probability distribution.

• Thus, a precise measurement of uncertainty is provided by standard deviation.

Expected monetary value : The expected monetary value can be defined as how much money you can expect from a certain decision.

• In expected monetary value the decision is based on the best expected value among alternative.

• Calculate the expected payoff of each alternative, and select the alternative with the best expected payoff.

Rahul Sunny answered 2 years ago

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