You Are Evaluating Investment Alternatives for a Ski Resort If You Use the EMV Criterion and You Decide Investment

question 19

Multiple Choice

You are evaluating investment alternatives for a ski resort.There are four alternative investments and their payoffs (in $10,000s) are shown in the following table, depending on the snow conditions for the next season. $\begin{array}{r}\text { Snow Conditions }\\\begin{array}{ccc}\text { Investment } & \text { Good } & \text { Bad } \\d_{1} & 3 & 1 \\d_{2} & 8 & 0 \\d_{3} & 12 & -4 \\d_{4} & 18 & -12\end{array}\end{array}$ If you use the EMV criterion and you decide investment d₂, then the probability that the snow conditions are good is ______.

• A)more than 0.5
• B)more than 0.17
• C)more than 0.25 and less than 0.67
• D)less than 0.17 or more than 0.5
• E)more than 0.17 and less than 0.5

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Definitions:

Short-Range Decisions

Choices or judgments made with immediate or near-term outcomes in mind, often without regard to long-term implications.

Long-Range Decisions

Choices or judgments that are made considering the future impact and outcomes over an extended period.

Practical Constraints

Limitations or restrictions arising from real-world circumstances, which can affect how tasks are performed or decisions are made.

Planning Fallacy

The cognitive bias that leads people to underestimate the amount of time needed to complete a task, despite knowing that similar tasks have taken longer in the past.