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Question 5.s-8: Finding Optimal Probability Ranges for the Expected Value Ap...

Finding Optimal Probability Ranges for the Expected Value Approach
Given the following table, determine the range of probability for state of nature #2—that is, P(2), for which each alternative is optimal under the expected-value approach.

STATE OF NATURE
#1 #2
A 4 12
Alternative B 16 2
C 12 8
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First, plot each alternative relative to P(2). To do this, plot the #1 value on the left side of  the graph and the #2 value on the right side. For instance, for alternative A, plot 4 on the left side of the graph and 12 on the right side. Then, connect these two points with a straight line. The three alternatives are plotted on the graph below.

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