Find range of probability by graphical sensitivity analysis

Reference no: EM13110302

The following payoff table shows profit for decision problem with two states of nature and two decision alternatives:

Decision Alternatives State of Nature
S1 S2
D1 10 1
D2 4 3

a. Use graphical sensitivity analysis to find out range of probabilities of state of nature S1 for which each of decision alternatives has largest expected value.

b. Assume P(S1) = 0.2 and P(S2) = 0.8. Determine the best decision using expected value approach?

c. Conduct sensitivity analysis on payoffs for decision alternative D1. Suppose probabilities are as given in part (b) and range of payoffs under states of nature S1 and S2 which will keep solution found in part (b) optimal. Is solution more sensitive to payoff under state of nature S1 or S2?

Reference no: EM13110302

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