A High-School Student Who Started Doing Photography as a Hobby

question 38

Essay

A high-school student who started doing photography as a hobby is considering going into the photography business. The anticipated payoff table is: $\begin{array}{ll}&\text { Alternative }\\\text { State of Nature }&\begin{array}{cc}\text { Start } \quad \text { Do not start } \\\text { new business } \quad \text { new business }\end{array}\\\begin{array}{ll}\text {Poor }\\\text {Fair }\\\text {Super }\end{array}&\begin{array}{|ll|}\hline-\$ 12000 \quad\quad\quad& 0\quad\quad\quad \\\$ 10000 & 0 \\\$ 15000 & 0 \\\hline\end{array}\end{array}$
The following prior probabilities are assigned to the states of nature:
P(poor) = 0.4, P(fair) = 0.4 , P(super) = 0.2.
a. Calculate the expected monetary value for each act with present information. What decision should be made using the EMV criterion?
b. Convert the payoff table to an opportunity loss table.
c. Calculate the expected opportunity loss for each act with present information. What decision should be made using the EOL criterion?
d. Review the decisions made in a. and c. Is this a coincidence? Explain.
e. What is the expected payoff with perfect information?
f. What is the expected value of perfect information? What does it mean?

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Definitions:

Lateral Thigh

The outer part of the thigh, often related to the muscles and tissues located on the side of the leg between the hip and the knee.

Vastus Medialis

A muscle located on the thigh's inner part, part of the quadriceps group, crucial for extending the knee and stabilizing the patella.

Rectus Femoris

A muscle in the quadriceps that extends the leg at the knee and is involved in hip flexion.

Adductor Muscles

Muscles located in the thigh that are responsible for pulling the legs together.