The total cost for each option in each state of

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The total cost for each option in each state of nature is obtained by adding the total monthly payment cost to the excess mileage cost. Total cost table b. Optimistic decision: Option 1 because the best (minimum) payoff (cost) for this is 11,800 which is better (lower) than the best payoff for each of the others. c. Pessimistic decision: Option 3 because the worst (maximum) payoff (cost) for this is 15,480 is better (lower) than the worst payoff for each of the others. d. Select Option 2. EMV(Option 1) = 11,880(0.4) + 15,030(0.3) + 18,180(0.3) = 14,715 EMV(Option 2) = 13,680(0.4) + 13,680(0.3) + 15,930(0.3) = 14,355 EMV(Option 3) = 15,480(0.4) + 15,480 (0.3) + 15,480(0.3) = 15,480 e. EVPI for a minimization problem = (Best EMV without PI) - (EV with PI) EV with PI = 11,880(0.4) + 13,680(0.3) + 15,480(0.3) = 13,500 EVPI = 14,355 13,500 = 855 3-30. Note that this is a minimization problem, so the opportunity loss is based on the lowest (best) cost in each state of nature. Opportunity loss table The maximum regrets are 2700 for option 1, 1800 for option 2, and 3600 for option 3. Option 2 is selected because 1800 is lower than the other maximums. EOL(option 1) = 0(0.4) + 1350(0.3) + 2700(0.3) = 1215 EOL(option 2) = 1800(0.4) + 0(0.3) + 450(0.3) = 855 EOL(option 3) = 3600(0.4) + 1800(0.3) + 0(0.3) = 1980 Option 2 has the lowest EOL, so this alternative is selected based on the EOL criterion.

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