A Decision Tree Indicates a 30% Chance of Making a $250,000

question 19

Multiple Choice

A decision tree indicates a 30% chance of making a $250,000 profit and a 70% chance of sustaining a $140,000 loss. Given this, the project should be:

• A) accepted because the amount of potential profit exceeds the amount of potential loss.
• B) rejected because there is more than a 50% chance of loss.
• C) accepted because the expected value is positive before discounting.
• D)rejected because the expected value is negative before discounting.

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Definitions:

Base-Rate Information

Statistical information about the frequency or prevalence of a phenomenon, event, or characteristic within a given population.

Cognitive Map

A mental representation of one's physical environment and spatial orientation.

Prototype

An original model or preliminary version of a product from which other forms are developed or copied.

Availability Heuristic

A cognitive bias in which people judge the probability of events based on how easily examples come to mind, often leading to skewed perceptions of reality.