For the Payoff Table Below, the Decision Maker Will Use

question 2

Essay

For the payoff table below, the decision maker will use P(s₁) = .15, P(s₂) = .5, and P(s₃) = .35. $$\begin{array} { c | r r c } &{ \text { State of Nature } } \\\text { Decision } & { \mathrm { s } _ { 1 } } & { \mathrm { s } _ { 2 } } & \mathrm {~s} _ { 3 } \\\hline d _ { 1 } & - 5,000 & 1,000 & 10,000 \\d _ { 2 } & - 15,000 & - 2,000 & 40,000\end{array}$$ What alternative would be chosen according to expected value?

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Definitions:

Assumptions

Beliefs or ideas taken for granted without proof, often serving as a basis for further reasoning or arguments.

Phenomena

Observable events or occurrences that can be investigated scientifically.

Theory

A set of principles on which the practice of an activity is based or an explanation of the principles of phenomena.

Confirmation Bias

A cognitive bias that involves favoring information that confirms previously existing beliefs or biases.