Describe the Major Tools and Criteria for Decision Making The Probability of Rates Rising Is 0

question 41

Multiple Choice

Describe the major tools and criteria for decision making. Use the information below to answer the following question(s) . The payoff table given below lists four mortgage options: $\begin{array}{|l|l|l|l|}\hline &\text { Outcome }\\\hline \text { Probability } & {\mathbf{0 . 6}} &{\mathbf{0 . 3}} &{\mathbf{0 . 1}} \\\hline \text { Decision } & \text { Rates Rise } & \text { Rates Stable } & \text { Rates Fall } \\\hline \text { 1-year ARM } & \$ 66,645 & \$ 43,650 & \$ 38,560 \\\hline \text { 3-year ARM } & \$ 62,857 & \$ 47,698 & \$ 42,726 \\\hline \text { 5-year ARM } & \$ 55,895 & \$ 50,894 & \$ 48,134 \\\hline \text { 30-year fixed } & \$ 52,276 & \$ 52,276 & \$ 52,276 \\\hline\end{array}$ The probability of rates rising is 0.6, rates stable is 0.3, and rates falling is 0.1.
-Which of the following decisions has the largest expected payoff?

• A) 1-year ARM
• B) 3-year ARM
• C) 5-year ARM
• D) 30-year fixed

---

Definitions:

Stanford Prison Study

A psychological experiment that investigated the effects of perceived power and authority on behavior, conducted by Philip Zimbardo.

Zimbardo

Psychologist known for leading the Stanford Prison Experiment, which studied the psychological effects of perceived power.

Sinister Ways

Methods or actions that are considered to be evil, harmful, or morally wrong.

Unrepresentative

Describes a sample or subset that does not accurately reflect the characteristics of the larger group or population it is meant to represent.