BUS 220 Study Guide - Final Guide: Expected Value Of Perfect Information, Collectively Exhaustive Events, Sensitivity Analysis

• School: Stony Brook University
• Department: Business Management
• Course: BUS 220
• Professor: Jadranka Skorin- Kapov

Document Summary

Useful methodology when we have several decision alternatives and uncertain future events (states of nature) We will study: decisions without probabilities: optimistic approach conservative (pessimistic) approach minimax regret approach decisions with probabilities: expected value (ev) expected value of perfect information (evpi) sensitivity analysis. Payoff table shows outcomes from decisions versus states of nature. States of nature have to be collectively exhaustive (include all possibilities under consideration) and mutually exclusive (include every possibility exactly once) Consider the problem with 3 decision alternatives and 3 states of nature with the following payoff table representing profits: