Posted: September 6th, 2022

Decision matrix Problem

You are considering three investment alternatives for some spare cash: Old

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Reliable Corporation stock (A1), Fly-By-Nite Air Cargo Company stock (A2), and a 

 

federally insured savings certificate (A3). You expect the economy will either 

 

“boom” (N1) or “bust” (N2), and you estimate that a boom is more likely (p1=0.6) 

 

than a bust (p2=0.4). Outcomes for the three alternatives are expected to be (1) 

 

$2,000 in boom or $500 in bust for ORC; (2) $6,000 in boom but $-5,000 (loss) in 

 

bust for FBN; and (3) $1,200 for the certificate in either case. Set up a payoff table 

 

(decision matrix) for this problem and show which alternative maximizes expected 

 

value.

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