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Managerial Decision Making Expected Value

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Conduct an Internet and literature search on the topic of the expected-value decision rule. Discuss your findings. Review how the expected-value decision rule played a part in a recent decision you made.

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The response addresses the queries posted in 386 words with references.
//The topic in this paper is the expected-value decision rule. It is a concept emerged about a century ago, which is based on probability. Here, different actions and their outcomes will be estimated, and expected value will be calculated identifying the payoff values.//

Expected-Value Decision Rule

Expected value or EV is the fundamental principle of decision analysis. It is a 17th century concept developed to understand gambling odds. The idea emerged at that time when people especially, gamblers faced a number of actions that were not expected. Each of these actions had at ...

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The response addresses the queries posted in 386 words with references.

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Which decision would you recommend to minimize costs? What is the expected value of perfect information?

A financial executive for A. G. Edwards & Sons lives in Boston but frequently must travel to New York. She can go to New York by car, train, or plane. The cost for a plane ticket from Boston to New York is $100, and it is estimated that the trip takes 30 minutes in good weather and 45 minutes in bad weather. The cost for a train ticket is $50, and the trip takes an hour in good weather and two hours in bad weather. The cost to drive her own car from Boston to New York is $20, and this trip takes three hours in good weather and four in bad weather. The executive places a value of $30 per hour on her time. The weather forecast is for a 60 percent chance of bad weather tomorrow.

What decision would you recommend? (Hint: Set up a payoff table, and remember that you want to minimize costs.) What is the expected value of perfect information?

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