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Opportunity Loss Table

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The probabilities for the states of nature A, B, and C are 0.3, 0.5, and 0.2, respectively. If a person were to use the expected opportunity loss criterion, what decision would be made?

Opportunity Loss Table

STATE OF NATURE
ALTERNATIVES A B C
Alternative 1 20 100 0
Alternative 2 100 0 25
Alternative 3 0 40 90

A. Alternative 1
B. Alternative 2
C. Alternative 3
D. State of Nature C
E. State of Nature B.

See the attached file.

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Solution Summary

Solution selects one of the given alternatives with the help of opportunity loss criterion.

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Expected opportunity loss in case of alternative 1=0.3*20+0.5*100+0.2*0=56 ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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