Business Statistics

738 Business Statistics

19.4  DECISION MAKING UNDER RISK

Decision making under risk is a situation where more than one state of nature exists and the decision

maker has sufficient information to assign probability values to the likelihood of occurrence of each of

these states. On the basis of the known probability values for the likelihood of the occurrence of each

of the states, a decision maker tries to select a course of action which gives the highest payoff value.

The three approaches a decision maker uses to evaluate various courses of action and select the best

course of action are as follows:

Expected monetary value (EMV)

Expected opportunity ...