Find the Expected Value of an Action

question 6

Multiple Choice

Find the expected value of an action.
-A land owner is considering a community development project in the southeastern
u.S. He is faced with two alternatives: (1) build detached homes in a planned retirement
Community or (2) build a smaller townhouse / condominium complex. Mortgage interest
Rates will affect his outcomes and the payoff (in $ millions) table is shown below. If the
Probabilities for future mortgage interest rates going up, staying about the same, and
Going down are .35, .50 and .15, respectively, what is the expected value for building an
Active retirement community?

• A) $2.5 million
• B) $3.625 million
• C) $2.75 million
• D) $875,000
• E) None of the above

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Definitions:

Counterconditioning

A behavior therapy technique that involves teaching the client to replace a negative response to a stimulus with a positive response.

Behavioral Contrast

The phenomenon where the rate of response varies according to a change in reinforcement conditions for one of two or more behaviors.

Sensory Preconditioning

A learning process where two neutral stimuli are paired together before one of them is paired with an unconditioned stimulus, affecting response to the second stimulus.

Conditioned Stimulus

A previously neutral stimulus that, after being associated with an unconditioned stimulus, triggers a conditioned response.