Refer to the Following Payoff Table

question 66

Multiple Choice

Refer to the following payoff table:

There is an option of paying $100 to have research done to better predict which state of nature will occur. When the true state of nature is S1, the research will accurately predict S1 60% of the time. When the true state of nature is S2, the research will accurately predict S2 80% of the time.
What is the unconditional probability that the research predicts S2?

• A) 0.32
• B) 0.4
• C) 0.44
• D) 0.56
• E) 0.6

---

Definitions:

Social Discount Rate

The rate used to convert future costs and benefits to their present value in order to make decisions regarding public projects.

NPV Calculations

The process of determining the net present value of cash flows by discounting them to the present value using a specific rate.

Carbon Tax

A tax imposed on carbon dioxide emissions, designed to reduce the use of fossil fuels and lower greenhouse gas emissions.

Stock Dissipation Rate

The rate at which a stock or resource diminishes due to use or other factors.