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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

Respuesta :

abdullahfarooqi

Answer:

$1000

Explanation:

Expected value of worst payoff (Ew) = $1000

Expected value of best payoff (Eb) = $3000

Expected value with perfect information (Ewpi) = $5000

Expected value of perfect information (Evpi) = $1000

The decision is to choose the options the maximum payoff that payoff of $3000

The benefits of taking the offer - Ewpi - Eb - Evpi = $5000 - $3000 - $1000 = $1000

bihariyadeep28

Decision can be said as the final call a person makes after analyzing the risks and return factors before investing somewhere.

Here , the decision maker has to decide whether to take the offer or not and how much profit can be obtained by taking this offer.

Given

Expected value of worst payoff (Ew) = $1000

Expected value with perfect information (Ewpi) = $5000

Expected value of best payoff (Eb) = $3000

Expected value of perfect information (Evpi) = $1000

[tex]\rm Benefits= Ewpi-Eb-Evpi\\\rm Benefits = \$5,000- \$3,000 -\$1,000\\\rm Benefits= \$1,000[/tex]

Therefore the benefits obtained by the firm will amount to the total of $1,000.

Learn more about Decision Making here;

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