
Chapter 19
PB
Statistical Decision Theory
833
For the three nodes, expected payoff can be computed as
For North region
0.45 × 100 + 0.35 × 80 + 0.20 × 60 = 85
For South region
0.45 × –60 + 0.35 × –20 + 0.20 × 150 = –4
For East region
0.45 × –120 + 0.35 × 40 + 0.20 × 135 = –13
The analysis clearly indicates that the maximum expected payoff is attached with node 1 (north
region). Hence, a decision maker should launch the product in the north region to obtain maxi-
mum payoff.
Statistical decision theory, Bayesian decision analysis, or simply
decision analysis is a technique to make decisions under condi-
tions of uncertainty in the environment. State of nature, ...