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PART C : DECISION TREE |
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EMV :- EXPECTED MONETARY
VALUE |
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or EXPECTED PAY OFF |
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vvvvvv imP |
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EX 1 FOR THE
FOLLOWING PAYOFF MATRIX FIND THE
OPTIMAL DECISION USING DECISION TREE ( USE EMV METHOD) |
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PAY OFF MATRIX |
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Course of Action |
State of Nature |
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Alternative |
S1 |
S2 |
S3 |
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A1 |
30 |
70 |
80 |
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A2 |
50 |
0 |
40 |
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A3 |
40 |
30 |
60 |
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Probability |
0.3 |
0.5 |
0.2 |
1 |
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EXPECTED PAY OFF MATRIX |
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Course of Action |
State of Nature |
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Alternative |
S1 |
S2 |
S3 |
EMV |
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A1 |
9 |
35 |
16 |
60 |
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A2 |
15 |
0 |
8 |
23 |
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A3 |
12 |
15 |
12 |
39 |
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EMV (A1) =
30*0.3+70*0.5+80*0.2 =9+35+16=60 |
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EMV (A2) =
50*0.3+0*0.5+40*0.2 = 15+0+8 = 23 |
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EMV (A3) =
40*0.3+30*0.5+ 60*0.2 = 12+15+12 =39 |
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OPTIMAL DECISION IS TO
CHOOSE A1 BY EMV CRITERIA USING DECISION TREE |
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EX 2 |
FIND THE BEST DECISION
USING DECISION TREE BY EMV CRITERIA |
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PAY OFF MATRIX |
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Course of Action |
State of Nature |
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Alternative |
S1 |
S2 |
S3 |
S4 |
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A1 |
35 |
100 |
38 |
75 |
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A2 |
58 |
95 |
105 |
55 |
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A3 |
45 |
30 |
91 |
100 |
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PROB |
0.2 |
0.3 |
0.4 |
0.1 |
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SOLUTION |
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EXPECTED PAY OFF
TABLE |
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Course of Action |
State of Nature |
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Alternative |
S1 |
S2 |
S3 |
S4 |
EMV |
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A1 |
7 |
30 |
15.2 |
7.5 |
59.7 |
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A2 |
11.6 |
28.5 |
42 |
5.5 |
87.6 |
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A3 |
9 |
9 |
36.4 |
10 |
64.4 |
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EMV (A1) = 35*0.2+
100*0.3+ 38*0.2 =7+ 30+ 15.2+ 7.5 = 59.7 |
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EMV (A2) = 11.6 + 28.5 + 42 +5.5 = 87.5 |
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EMV
(A3) = 9 + 9 +36.4 + 10 + 64.4 |
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BEST DECISION IS TO
SELECT A2 BY EMV CRITERIA USING DECISION TREE |
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Ex 3 : FIND THE BEST DECISION USING EMV CRITERION |
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PAY OFF MATRIX |
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EVENTS |
A1 |
A2 |
A3 |
PROB |
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E1 |
25 |
-125 |
-10 |
0.5 |
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E2 |
400 |
400 |
440 |
0.4 |
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E3 |
650 |
750 |
740 |
0.1 |
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PAY OFF MATRIX |
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EVENTS |
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ALTERNATIVES |
E1 |
E2 |
E3 |
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A1 |
25 |
400 |
650 |
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A2 |
-125 |
400 |
750 |
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A3 |
-10 |
440 |
740 |
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PROB |
0.5 |
0.4 |
0.1 |
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EXPECTED PAY OFF TABLE |
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EVENTS |
E1 |
E2 |
E3 |
EMV |
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A1 |
12.5 |
160 |
65 |
237.5 |
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A2 |
-62.5 |
160 |
75 |
172.5 |
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A3 |
-5 |
176 |
74 |
245 |
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EMV (A1) = 12.5 + 160 +
65 = 237.5 |
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EMV (A2) = -62.5+ 160 + 75 = 172.5 |
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EMV
(A3) = -5 +176 +74 = 245 |
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BEST DECISION IS TO
SELECT A3 BY EMV CRITERIA USING DECISION TREE |
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