37 Given the decision tree in the figure below which alterna

3.7 Given the decision tree in the figure below, which alternative should be chosen?

Solution

weighted average payoff of alternative A = 0.2*40+0.35*27+0.2*60+0.25*37 = $38.7

weighted average payoff of alternative B = 0.15*18+0.20*62+0.60*25+0.05*120 = $36.1

So, alternative A should be choosen