A Decision Maker's Worst Option Has an Expected Value of $1,000

question 7

Multiple Choice

A decision maker's worst option has an expected value of $1,000, and her best option has an expected value of $3,000. With perfect information, the expected value would be $5,000. The decision maker has discovered a firm that will, for a fee of $1,000, make her position-risk free. How much better off will her firm be if she takes this firm up on its offer?

• A)$5,000
• B)$4,000
• C)$3,000
• D)$2,000
• E)$1,000

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Definitions:

Economical

Pertaining to the efficient use or management of resources to achieve a goal without wasteful expenditures.

Inventory Held

Refers to the stock of goods or materials that a company keeps on hand to meet demand.

Daily Sales Rate

The average amount of sales generated per day over a specific period of time.

Composite Score

A metric that combines multiple individual scores or indicators into a single overall measure.