Exhibit 14.5 The Following Questions Are Based on the Information Below

question 8

Multiple Choice

Exhibit 14.5
The following questions are based on the information below.
An investor is considering 4 investments, A, B, C, D. The payoff from each investment is a function of the economic climate over the next 2 years. The economy can expand or decline. The following decision tree has been developed for the problem. The investor has estimated the probability of a declining economy at 40% and an expanding economy at 60%.
-Refer to Exhibit 14.5. What is the correct decision for this investor based on an expected monetary value criterion?

• A) A
• B) B
• C) C
• D) D

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Definitions:

Deliberate Trial-And-Error

A methodical approach to problem-solving that involves intentional experimentation to find a solution.

Secondary Schemes

Developmental behaviors observed in infants from around 4 to 8 months of age, indicating the emergence of coordinated actions involving both sensory and motor activities.

Simple Reflex

A basic, automatic response to a stimulus that does not involve any conscious decision, such as the knee-jerk reaction.

Tertiary Circular Reactions

The purposeful adaptation of established schemes to new situations.