DA2-EMV_DOND

DA2-EMV_DOND - h is How muc se? in my ca Expected Monetary...

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1 1 Expected Monetary Value UGBA 143: Game Theory and Business Decisions 2 How m uch is in m y case? uch w ill I knock off? 3 Previous lecture Probability models: – Summarize the set of all possible scenarios – Estimate probabilities using data 0.15 Miss 0.05 Hit right 0.05 Hit left 0.75 Goal Probability Outcome Buy No 0.75 0.25 Buy No 0.75 0.25 Probability trees: 4 Deal or No Deal? A probability model (table) summarizes the likelihood of each possible outcome But it does not tell us what we should do Need a single measure (single number) for decision-making purposes Expected Monetary Value (EMV) 5 Expected Monetary Value Suppose that Scenarios 1, 2, 3, …, n occur with probability p 1 , p 2 , p 3 , …, p n When Scenario k occurs, the payoff is V k ¾ Expected monetary value = p 1 V 1 + p 2 V 2 + p 3 V 3 + … + p n V n 6 W hat is the EM V of the am ount in your case?
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2 7 Calculating EMV of your case 0.05 500,000 0.05 1,000,000 0.05 750,000 0.05 400,000 0.05 300,000 0.05 200,000 0.05 100,000 0.05 75,000 0.05 50,000 0.05 1,000 0.05 750 0.05 500 0.05 400 0.05 300 0.05 200 0.05 75 0.05 25 0.05 5 0.05 1 0.05 0.01 Probability Amount EMV = 0.01 x 0.05 + 1 x 0.05 + 5 x 0.05 + 25 x 0.05 + … + 500 x 0.05 + … + 750,000 x 0.05
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DA2-EMV_DOND - h is How muc se? in my ca Expected Monetary...

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