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Lecture Suggestions  Supplement to Chapter 5
Example 8: Sensitivity Analysis
1.
states of nature (S1, S2) have been entered.
2.
of the probability of S2 between 0 and 1.
For example, the EMV for alternative A is graphed in the dark
blue line.
You can point to the two endpoints of this line and show that when P(S2) = 0 (and P(S1)=1)
then EMV(alt A) = 4, and when P(S1) = 1 then EMV(alt A) = 12.
You may want to review the formula
for computing EMV.
3.
table in the extreme lower right hand corner.
4.
a.
Start with P(S2) = 0 and point out that alternate B has the maximum EMV=16, as shown in red
in the same table in the lower right
b.
Then click the spinner button and point out that at P(S2)=.4 there is a tie between alternatives B
and C, both with an EMV=10.4.
c.
Continue to click the spinner button and point out that when P(S2) is between .4 and .6,
alternative C has the max EMV, but at P(S2)=.7, alternative A has the maximum EMV.
d.
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 Spring '11
 GAD

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