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    Financial Versus Practical Considerations in Decision Making

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    A. CoffeeTime is considering selling juices along with its other products. Prob *val=
    States of Nature
    High Sales Med. Sales Low Sales
    A(0.2) B(0.5) C(0.3)
    A1 (sell juices) 3000 2000 -6000
    A2 (don't sell juices) 0 0 0

    The probabilities shown above represent the states of nature and the decision maker's (e.g., manager) degree of uncertainties and personal judgment on the occurrence of each state. What is the expected payoff for actions A1 and A2 above? What would be your recommendation? Interpret the results based on practical considerations.

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    Solution Preview

    See the attached file. The expected value of CoffeeTime is wrong in attachment as -400. It is actually -200. See below:
    For weak sales the value is -2000 and not -5999.7

    a. Calculated Benefit: Systematic development
    Strong Sales= ...

    Solution Summary

    A simple and systematic way to show how decision-making can be done when choices are made under uncertainty. The concepts of probability and expected payoff are used to select the best alternative for the CoffeeTime. The post also discusses the practical considerations along with financial considerations while taking a decision.