- 3 0 36 0 5 Points Details Previous Answers Cammba4 15 E 006 7 50 Submissions Used My Notes Practice Another The Foll 1 (69.07 KiB) Viewed 18 times
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3. [0.36/0.5 Points] DETAILS PREVIOUS ANSWERS CAMMBA4 15.E.006. 7/50 Submissions Used MY NOTES PRACTICE ANOTHER 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 Si S2 di 13 4 d2 7 6 (a) Suppose P(sq) = 0.2 and P(S2) = 0.8. What is the best decision using the expected value approach? The best decision is dz with an expected value of 6.2 (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. As long as the payoff for s, under d, is s 4.5 x then the solution found in part (a) will be optimal. As long as the payoff for S2 under d, is s 25 x , then the solution found in part (a) will be optimal. Is the solution more sensitive to the payoff under state of nature S, or sz? O 51 OS2