Refer to the Following Payoff Table

question 14

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 posterior probability of S2 given that the research predicts S2?

• A) 0.18
• B) 0.44
• C) 0.57
• D) 0.65
• E) 0.82

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Definitions:

Equate

To consider one thing to be the same as or equivalent to another.

Critics

Individuals or groups who express judgments and opinions on works of art, policies, performances among others, often based on careful analysis and evaluation.

Utilitarian Theory

A normative ethical theory that suggests the best action is the one that maximizes utility, typically defined as that which produces the greatest well-being of the greatest number of people.

Public Policy

The principles and actions adopted or proposed by a government or organization to address public issues, concerns, or the welfare of the community.