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Decision Analysis-Sensitivity

Decision Analysis-Sensitivity Answer

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Ira Grace De Castro
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69 views1 page

Decision Analysis-Sensitivity

Decision Analysis-Sensitivity Answer

Uploaded by

Ira Grace De Castro
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Ira Grace B. De Castro.

ACN1 | CAED101

State of Nature
Decision Alternative (s1) (s2)
(d1) 10 1
(d2) 4 3

EV (di) = ∑𝑁
𝑗=1 𝑃(𝑆𝑗 )𝑉𝑖𝑗

EV (d1) = 0.20(10) + 0.80(1) = 2 + 0.80 = 2.80


EV (d2) = 0.20(4) + 0.80(3) = 0.80 + 2.40 = 3.20
Under the expected value approach (without perfect information), d2 is the recommended
decision with an expected value of 3.2.

Sensitivity Analysis | Payoffs


EV (d2) ≥ 2.80
EV (d2) = 0.20S1 + 0.80S2
EV (d2) = 0.20S1 + 0.80S2 ≥ 2.80
EV (d2) = 0.20(4) + 0.80S2 ≥ 2.80 EV (d2) = 0.20S1 + 0.80(3) ≥ 2.80
0.80 + 0.80S2 ≥ 2.80 0.20S1 + 2.40 ≥ 2.80
0.80S2 ≥ 2.80 – 0.80 0.20S1 ≥ 2.80 – 2.40
0.80S2 ≥ 2 0.20S1 ≥ 0.40
S1 ≥ 2.50 S2 ≥ 2

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