success 0.

45 Potential Profit
$ 500

Solar fail 0.55 Potential Loss

$ 115 $ (200)

success 0.6 Potential Profit

$ 200
WHICH GENERATOR
Wind
TO FUND
$ 90 fail 0.4 Potential Loss
$ (75)

Gasoline
success 0.5 Potential Profit
$ 125 $ 400

fail 0.5 Potential Loss

$ (150)
Maximax Approach
Payoff table

Alternative Success Fail Max in Row

Solar $ 500 -$200 $ 500
Based off the Maximax
Wind $ 200 -$75 $ 200 option is t
Gasoline $ 400 -$150 $ 400

Maximum Likelihood Criterion

1. Identify the one with the largest prior probability

Wind Success 0,6
Fail 0,4
2. Choose the decision alternative that has the largest payoff for this state of nature
Alternative Success Fail
Solar $ 500 -$200
Based off the Maximum
Wind $ 200 -$75 generator optio
Gasoline $ 400 -$150
Prior Probability 0.60 0.40
(max)

Expected Monetary Value Criterion

EV Solar = (0.45 x $500,000,000) + (0.55 x -$200,000,000)
$115

EV Wind = (0.6 x $200,000,000) + (0.4 x -$75,000,000)

$90
EV Gasoline = (0.5 x $400,000,000) + (0.5 x -$150,000,000)
$125

Based off the Maximum Likelihood Criterion, the GASOLINE generator option is the most
attractive
Based off the Maximax Criterion, the SOLAR generator
option is the most attractive

Based off the Maximum Likelihood Criterion, the SOLAR

generator option is the most attractive
A Success Profit $ 500 Value Success
45%
Solar Success Profit
Modify 75%

Fail Fail 25%

55.00% Loss

No Modify Loss $ (200)No Modify

Success Profit $ 200 Value Success

60%
Wind
Modify Success Profit
25%

Fail Fail 75%

40% Loss

No Modify Loss $ (75)No Modify

Success Profit $ 400 Value Success $ 200

50%
Gasoline

Fail Loss $ (150) Value Loss $ (75)

50%

EMV Solar $ 314.38

EMV Wind $ 90.00

EMV Gasoline $ 125

Based on the decision tree, the most attractive option to modify is solar
generator.
$ 225

$ 300 Value Success $ 225

EMV $ 163

$ (250) Value Loss $ (63)

$ -

$ 120

$ 100 Value Success $ 25

EMV $ (42.50)

$ (90) Value Loss $ (68)

$ (30)

EMV $ 125