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 Probability and Statistics
 decision and opportunity loss tables
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Roy3
New Member

USA
1 Posts

Posted - 09/09/2007 :  09:48:41  Show Profile
I am having trouble with decision and opportunity loss tables any help would be great, thank you all for your time.
Roy

Decision Alternative...Good Economy...Poor Economy
Stock Market.............80,000............-20,000
Bonds.......................30,000.............20,000
CDs.........................23,000.............23,000
Probability.................0.5.................0.5
What decision would maximize expected profits?

What is the maximum amount that should be paid for a perfect forecast of the economy?

Develop an opportunity loss table:

What decision would minimize the expected opportunity loss?

What is the minimum EOL?
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tkhunny
Advanced Member

USA
1001 Posts

Posted - 09/09/2007 :  22:29:30  Show Profile
Expected value is simple, as there are only two probabilities.

Stock: 0.5*80000+0.5*(-20000)

You do the other two and compare the results.

Forecast Price? How much can the decision be improved?

There is only one with a loss. Stay away from that one. Does your definition of loss include negative losses? In other words, is a gain of 10,000 a loss or -10,000, or is it just a loss of zero (0)?
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