Answer to Question #301291 in Management for obama

Question

Consider the following Decision alternative for the Raman Pahwa, he wants to invest in

stocks, and thought about two situations about tomorrow’s market condition. The figures

(in INR) in the following table exhibit profit per unit of stock-investment.

payoff table:

Favorable market Unfavorable market

Lakshmi pvt ltd 55 26

Mehta Groups of industries 43 38

Surya 29 43

LT energy 15 51

1. Draw the decision tree

2. If we assign the following probabilities to the states of nature, then determine the

EMV decision.

P(s1) = .4 P(s2) = .1 P(s3) = .3 P(s4) = .2

Answer 1

The above is the decision tree.

EMV = multiplying the value of each possible outcome (impact) by its likelihood of occurrence (probability) and then adding the results

(4*2) + (4*3) = 8+12= 20