A payoff table is given as What choice should be made using

A payoff table is given as What choice should be made using the Hurwicz method, in which die coefficient of optimism is .5? (hint: in this method, only the most favorable and least favorable states of nature are used)

Solution

The calculation of expected value for each choice is shown below

The most favorable is the choice d3 as expected value is maximum.

	Payoff table
	s1	s2	s3		prob	EV
d1	250	450	500	1200	0.3	360
d2	300	-250	700	750	0.4	300
d3	400	500	800	1700	0.3	510