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1)
In the following profit payoff table for a decision problem with two states of nature and
three decision alternatives, the prior probabilities are (ps1)=0.8 and p(s2)=0.2
States of nature are (s1/d1) 15, (s1/d2) 10, (s1/d3) 8
(s2/d1) 10 (s2/d2)12 (s2/d3) 20
a.
What is the optimal decision based on expected value?
b.
Find EVPI.
c.
Suppose that sample information I is obtained with p(I/s1)=0.2 and p(I/s2)=0.75. find
P(I)using the multiplication rule, and then find the posterior probabilities, p(s1/I) and
p(s2/I) using bayes theorem
d.
What is the optimal decision based on expected value using the sample information.
Construct a tree diagram to aid you.
e.
Find EVSI
f.
Find the efficiency of the dample information. (E)
2)
Amy Lloyd is interested in leasing a new Saab and has contacted three automobile
dealers for pricing information. Each dealer offered Amy a closedend 36month lease
with no down payment due at the time of signing. Each lease includes a monthly charge
and a mileage allowance. Additional miles receive a surcharge on a permile basis. The
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 Spring '11
 PartialFractions

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