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What is the expected value with perfect information of the following decision table? States of nature...

What is the expected value with perfect information of the following decision table?

States of nature

Alternative

S1

S2

Probability

0.4

0.6

Option 1

10,000

30,000

Option 2

5,000

45,000

Option 3

-4,000

60,000

A) 5,000         B) 10,000         C) 40,000         D) 60,000         E) 70,000

Solutions

Expert Solution

With perfect information, the best outcome of an alternative will be selected.

In S1, option 1 is the highest (at 10,000) and so it will be selected.

In S2, option 3 is the highest (at 60,000) and so it will be selected.

Expected value = probability*value

= (0.4*10,000) + (0.6*60,000)

= 4,000+36,000 = 40,000

Answer is option C.

Amanda K answered 2 years ago
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