Consider the following decision table which was developed fo

Consider the following decision table, which was developed for a project selection committee at Red Ball Enterprises.

Decision

Probability

0.2

0.5

0.3

Alternatives

Low

Medium

High

A

$                           45

$               110

$                 67

B

$                           40

$                 64

$                 75

C

$                           65

$                 80

$                 77

D

$55

$                 80

$                 78

E

$                           75

$                 70

$                 85

Which decision alternative maximizes the expected value of the payoff? (Points : 30)

Solution

expected value E(X) = X1*P(X1)+X2*P(X2)+.....+XN*P(XN)

HERE WE HAVE TO GET THE MAXIMUM PAYOFF WHICH MEANS WE HAVE TO CHOOSE THE COMBINATION OF 3 WHICH CAN GIVE US THE MAXIMUM PAYOFF

SO THE COMBINATION WHICH WILL GIVE MAXIMUM PAYOFF = 0.2*E + 0.5*A +0.3*D

= 0.2*75 + 0.5*110 +0.3*78 = 95.9