Expectation Variance in Decision Making
In the Mountain Systems Western Division example, basing the decision on expected value alone was sufficient because the probabilities for each of the outcomes were the same for each of the alternatives. However, this isn't always the case, and the differing probabilities could themselves influence the decision. Suppose that the Eastern Division of Mountain Systems needs to choose between two of their own alternatives, the Berkshire project and the Pocono project. They know that they don't have the resources to do both.
The details of the Berkshire project are shown in Table 24.4. In PW(i) terms, its expected value is $837,000.
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