Question

* Question Completion Status: QUESTION 2 Given is a Decision Tree Diagram. The Payoffs 1-14 are given in the table below. Answer questions a, b, and c. 1/3 Payoff 1 1/3 Payoff 2 1/3 4 Payoff 3 Payoff 4 0.30 0.50 Payoff 5 Alternative A 0.20 Payoff 6 9 1/3 1/3 Payoff 7 PayOff 8 PayOff 9 1/3 Alternative B 5 0.30) PayOff 10 0.50 Payoff 11 0.20 PayOff 12 1/2 6 Payoff 13 1/2 PayOff 14 ta demit Clint Saul Ansurers to save all answers

Answer 1

Value at Node 1: 0.33*5+0.33*(-2)+0.33*(5) = 2.64

Payoff 4 = 2

a) Value at node 4= max (Node 1, Payoff 4)

So, value at node 4 is 2.64

Value at node 7 = 0.3*2.64 + 0.5*9+ 0.2*2 =5.692

Value at node 2 = 0.33*(5)+0.33*(-5)+0.33*(3)=0.99

Value at node 5 = max (node 2, payoff 10)= max (0.99,4) = 4

Value at node 3 = 0.5*(7)+0.5*(6)=6.5

Value at node 6 = max (node 3, payoff 12)= max (-3,6.5) = 6.5

b. Value at node 8 = max (node 5, node 6) = max (4, 6.5) = 6.5

Value at node 8 = 6.5

c) Best decision between alternative A and B is max between value at node 7 (5.692) and value at node 8 (6.5) .

Hence, the best decision is alternative B.

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