Homework SourseFor the payoff table below the decision maker will use Ps1
For the payoff table below, the decision maker will use P(s1) = .15, P(s2) = .5, and P(s3) = .35.
What is the most you would pay for a highly reliable forecast?
State of Nature
Decision
s1
s2
s3
d1
-5,000
1,000
10,000
d2
-15,000
-2,000
40,000
7750
7325
10750
13750
3000
| For the payoff table below, the decision maker will use P(s1) = .15, P(s2) = .5, and P(s3) = .35.
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Solution
Answer to the question)
We observe that state 1 has both the payoffs in negative , this implies that the amount need to be paid
The payment amount will be = 0.15 * (5000) + 0.15 * (15000) = 3000
Thus the maximum amount that needs to be paid for this forecast is for the State 1 (S1) , the amount is 3000
Thus the correct option is E : 3000
