b.

.
3-50. If no survey is to be conducted, the decision tree is fairly straightforward. There are three
main decisions, which are building a small, medium, or large facility. Extending from these
decision branches are three possible demands, representing the possible states of nature. The
demand for this type of facility could be either low (L), medium (M), or high (H). It was given in
the problem that the probability for a low demand is 0.15. The probabilities for a medium and a
high demand are 0.40 and 0.45, respectively. The problem also gave monetary consequences for
building a small, medium, or large facility when the demand could be low, medium, or high for
the facility. These data are reflected in the following decision tree.

With no survey, we have: EMV(Small) = 500,000; EMV(Medium) = 670,000; and EMV(Large)

= 580,000. The medium facility, with an expected monetary value of $670,000, is selected
because it represents the highest expected monetary value.
If the survey is used, we must compute the revised probabilities using Bayes’ theorem. For
each alternative facility, three revised probabilities must be computed, representing low,
medium, and high demand for a facility. These probabilities can be computed using tables. One
table is used to compute the probabilities for low survey results, another table is used for medium
survey results, and a final table is used for high survey results. These probabilities will be used in
the decision tree that follows.
For low survey results—A1:
State of Nature P(Bi) P(Ai | Bj) P(Bj and Ai) P(Bj | Ai)
B1 0.150 0.700 0.105 0.339
B2 0.400 0.400 0.160 0.516
B3 0.450 0.100 0.045 0.145
P(A1) = 0.310
For medium survey results—A2:
State of Nature P(Bi) P(Ai | Bj) P(Bj and Ai) P(Bj | Ai)
B1 0.150 0.200 0.030 0.082
B2 0.400 0.500 0.200 0.548
B3 0.450 0.300 0.135 0.370
P(A2) = 0.365

For high survey results—A3:

State of Nature P(Bi) P(Ai | Bj) P(Bj and Ai) P(Bj | Ai)
B1 0.150 0.100 0.015 0.046
B2 0.400 0.100 0.040 0.123
B3 0.450 0.600 0.270 0.831
P(A3) = 0.325
When survey results are low, the probabilities are P(L) = 0.339; P(M) = 0.516; and P(H) =
0.145. This results in EMV(Small) = 450,000; EMV(Medium) = 495,000; and EMV(Large) =
233,600.
When survey results are medium, the probabilities are P(L) = 0.082; P(M) = 0.548; and P(H)
= 0.370. This results in EMV (Small) = 450,000; EMV(Medium) = 646,000; and EMV(Large) =
522,800.
When survey results are high, the probabilities are P(L) = 0.046; P(M) = 0.123; and P(H) =
0.831. This results in EMV(Small) = 450,000; EMV(Medium) = 710,100; and EMV(Large) =
821,000.
If the survey results are low, the best decision is to build the medium facility with an
expected return of $495,000. If the survey results are medium, the best decision is also to build
the medium plant with an expected return of $646,000. On the other hand, if the survey results
are high, the best decision is to build the large facility with an expected monetary value of
$821,000. The expected value of using the survey is computed as follows:
EMV(with Survey) = 0.310(495,000) + 0.365(646,000)
+ 0.325(821,000) = 656,065
Because the expected monetary value for not conducting the survey is greater (670,000), the
decision is not to conduct the survey and to build the medium-sized facility.
3-51. a.
Mary should select the traffic circle location (EMV = $250,000).
b. Use Bayes’ Theorem to compute posterior probabilities.

D
P(SD | SRP) = 0.78; P( S | SRP) = 0.22
M
P(SM | SRP) = 0.84; P( S | SRP) = 0.16
C
P(SC | SRP) = 0.91; P( S | SRP) = 0.09
D
P(SD | SRN) = 0.27; P( S | SRN) = 0.73
M
P(SM | SRN) = 0.36; P( S | SRN) = 0.64
C
P(SC | SRN) = 0.53; P( S | SRN) = 0.47
Example computations:

P SRP SM P SM() ( )
P SM SRP()=

P SRP SM P SM( ) ()+ P SRP SM P SM( )( )

P SM SRP()== 0.84
0.7 0.6 0.2 0.4
 P SC
SRN()
== 0.53 0.3 0.75 0.8 0.25

These calculations are for the tree that follows:

EMV(2) = $171,600 – $28,600 = $143,000
EMV(3) = $226,800 – $20,800 = $206,000
EMV(4) = $336,700 – $20,700 = $316,000
EMV(no grocery – A) = –$30,000
EMV(5) = $59,400 – $94,900 = –$35,500
EMV(6) = $97,200 – $83,200 = $14,000
EMV(7) = $196,100 – $108,100 = $88,000
EMV(no grocery – B) = –$30,000
EMV(8) = $75,000
EMV(9) = $140,000
EMV(10) = $250,000
EMV(no grocery – C) = $0
EMV(A) = (best of four alternatives) = $316,000
EMV(B) = (best of four alternatives) = $88,000
EMV(C) = (best of four alternatives) = $250,000
EMV(1) = (0.6)($316,000) + (0.4)($88,000)
= $224,800
EMV(D) = (best of two alternatives)
= $250,000
c. EVSI = [EMV(1) + cost] – (best EMV without
sample information)
= $254,800 – $250,000 = $4,800.
3-52. a. Sue can use decision tree analysis to find the best solution. In this case, the best
decision is to get information. If the information is favorable, she should build the retail store. If
the information is not favorable, she should not build the retail store. The EMV for this decision
is $29,200.
In the following results (using QM for Windows), Branch 1 (1–2) is to get information,
Branch 2 (1–3) is the decision to not get information, Branch 3 (2–4) is favorable information,
Branch 4 (2–5) is unfavorable information, Branch 5 (3–8) is the decision to build the retail store
and get no information, Branch 6 (3–17) is the decision to not build the retail store and to get no
information, Branch 7 (4–6) is the decision to build the retail store given favorable information,
Branch 8 (4–11) is the decision to not build given favorable information, Branch 9 (6–9) is a
successful retail store given favorable information, Branch 10 (6–10) is an unsuccessful retail
store given favorable information, Branch 11 (5–7) is the decision to build the retail store given
unfavorable information, Branch 12 (5–14) is the decision not to build the retail store given
unfavorable information, Branch 13 (7–12) is a successful retail store given unfavorable
information, Branch 14 (7–13) is an unsuccessful retail store given unfavorable information,
Branch 15 (8–15) is a successful retail store given that no information is obtained, and Branch 16
(8–16) is an unsuccessful retail store given no information is obtained.
Results for 3-52. a.
Start Ending Branch Profit Use Node Node
Node Node Prob. (End Node) Branch? Type Value
Start 0 1 0 0 Dec 29,200
Branch 1 1 2 0 0 Yes Ch 29,200
Branch 2 1 3 0 0 Dec 28,000
Branch 3 2 4 0.6 0 Dec 62,000
Branch 4 2 5 0.4 0 Dec –20,000
Branch 5 3 8 0 0 Yes Ch 28,000
Branch 6 3 17 0 0 Fin 0
Branch 7 4 6 0 0 Yes Ch 62,000
Branch 8 4 11 0 –20,000 Fin –20,000
Branch 9 6 9 0.9 80,000 Fin 80,000
Branch 10 6 10 0.1 –100,000 Fin –100,000
Branch 11 5 7 0 0 Ch –64,000
Branch 12 5 14 0 –20,000 Yes Fin –20,000
Branch 13 7 12 0.2 80,000 Fin 80,000
Branch 14 7 13 0.8 –100,000 Fin –100,000
Branch 15 8 15 0.6 100,000 Fin 100,000
Branch 16 8 16 0.4 –80,000 Fin –80,000

b. The suggested changes would be reflected in Branches 3 and 4. The decision stays the
same, but the EMV increases to $37,400. The results are provided in the tables that follow. In
these tables, BR = Branch; Prob. = Probability; and for Node Type, Dec = Decision, Ch =
Chance, and Fin = Final.

Results for 3-52. b.

Start Ending Branch Profit Use Node Node
Node Node Prob. (End Node) Branch? Type Value
Start 0 1 0 0 Dec 37,400
Branch 1 1 2 0 0 Yes Ch 37,400
Branch 2 1 3 0 0 Dec 28,000
Branch 3 2 4 0.7 0 Dec 62,000
Branch 4 2 5 0.3 0 Dec –20,000
Branch 5 3 8 0 0 Yes Ch 28,000
Branch 6 3 17 0 0 Fin 0
Branch 7 4 6 0 0 Yes Ch 62,000
Branch 8 4 11 0 –20,000 Fin –20,000
Branch 9 6 9 0.9 80,000 Fin 80,000
Branch 10 6 10 0.1 –100,000 Fin –100,000
Branch 11 5 7 0 0 Ch –64,000
Branch 12 5 14 0 –20,000 Yes Fin –20,000
Branch 13 7 12 0.2 80,000 Fin 80,000
Branch 14 7 13 0.8 –100,000 Fin –100,000
Branch 15 8 15 0.6 100,000 Fin 100,000
Branch 16 8 16 0.4 –80,000 Fin –80,000

c. Sue can determine the impact of the change by changing the probabilities and recomputing
EMVs. This analysis shows the decision changes. Given the new probability values, Sue’s best
decision is build the retail store without getting additional information. The EMV for this decision
is $28,000. The results are presented below:

Results for 3-52. c.

Start Ending Branch Profit Use Node Node
Node Node Prob. (End Node) Branch? Type Value
Start 0 1 0 0 Dec 28,000
Branch 1 1 2 0 0 Ch 18,400
Branch 2 1 3 0 0 Yes Dec 28,000
Branch 3 2 4 0.6 0 Dec 44,000
Branch 4 2 5 0.4 0 Dec –20,000
Branch 5 3 8 0 0 Yes Ch 28,000
Branch 6 3 17 0 0 Fin 0
Branch 7 4 6 0 0 Yes Ch 44,000
Branch 8 4 11 0 –20,000 Fin –20,000
Branch 9 6 9 0.8 80,000 Fin 80,000
Branch 10 6 10 0.2 –100,000 Fin –100,000
Branch 11 5 7 0 0 Ch –64,000
Branch 12 5 14 0 –20,000 Yes Fin –20,000
Branch 13 7 12 0.2 80,000 Fin 80,000
Branch 14 7 13 0.8 –100,000 Fin –100,000
Branch 15 8 15 0.6 100,000 Fin 100,000
Branch 16 8 16 0.4 –80,000 Fin –80,000

d. Yes, Sue’s decision would change from her original decision. With the higher cost of
informa-tion, Sue’s decision is to not get the information and build the retail store. The EMV of
this decision is $28,000. The results are given below:

Results for 35-2. d.

Start Ending Branch Profit Use Node Node
Node Node Probability (End Node) Branch? Type Value
Start 0 1 0 0 Decision 28,000
Branch 1 1 2 0 0 Chance 19,200
Branch 2 1 3 0 0 Yes Decision 28,000
Branch 3 2 4 0.6 0 Decision 52,000
Branch 4 2 5 0.4 0 Decision –30,000
Branch 5 3 8 0 0 Yes Chance 28,000
Branch 6 3 17 0 0 Final 0
Branch 7 4 6 0 0 Yes Chance 52,000
Branch 8 4 11 0 –30,000 Final –30,000
Branch 9 6 9 0.9 70,000 Final 70,000
Branch 10 6 10 0.1 –110,000 Final –110,000
Branch 11 5 7 0 0 Chance –74,000
Branch 12 5 14 0 –30,000 Yes Final –30,000
Branch 13 7 12 0.2 70,000 Final 70,000
Branch 14 7 13 0.8 –110,000 Final –110,000
Branch 15 8 15 0.6 100,000 Final 100,000
Branch 16 8 16 0.4 –80,000 Final –80,000
e. The expected utility can be computed by replacing the monetary values with utility values.
Given the utility values in the problem, the expected utility is 0.62. The utility table represents a
risk seeker. The results are given below.

Results for 3-52. e.

Start Ending Branch Profit Use Ending Node Node
Node Node Prob. (End Node) Branch? Node Type Value
Start 0 1 0 0 1 Dec 0.62
Branch 1 1 2 0 0 2 Ch 0.256
Branch 2 1 3 0 0 Yes 3 Dec 0.62
Branch 3 2 4 0.6 0 4 Dec 0.36
Branch 4 2 5 0.4 0 5 Dec 0.1
Branch 5 3 8 0 0 Yes 8 Ch 0.62
Branch 6 3 17 0 0.2 17 Fin 0.20
Branch 7 4 6 0 0 Yes 6 Ch 0.36
Branch 8 4 11 0 0.1 11 Fin 0.1
Branch 9 6 9 0.9 0.4 9 Fin 0.4
Branch 10 6 10 0.1 0 10 Fin 0
Branch 11 5 7 0 0 7 Ch 0.08
Branch 12 5 14 0 0.1 Yes 14 Fin 0.1
Branch 13 7 12 0.2 0.4 12 Fin 0.4
Branch 14 7 13 0.8 0 13 Fin 0
Branch 15 8 15 0.6 1 15 Fin 1
Branch 16 8 16 0.4 0.05 16 Fin 0.05

f. This problem can be solved by replacing monetary values with utility values. The expected
utility is 0.80. The utility table given in the problem is representative of a risk avoider. The results
are presented below:

Results for 3-52. f.

Start Ending Branch Profit Use Node Node
Node Node Prob. (End Node) Branch? Type Value
Start 0 1 0 0 Dec 0.80
Branch 1 1 2 0 0 Ch 0.726
Branch 2 1 3 0 0 Yes Dec 0.80
Branch 3 2 4 0.6 0 Dec 0.81
Branch 4 2 5 0.4 0 Dec 0.60
Branch 5 3 8 0 0 Yes Ch 0.76
Branch 6 3 17 0 0.8 Fin 0.80
Branch 7 4 6 0 0 Yes Ch 0.81
Branch 8 4 11 0 0.6 Fin 0.60
Branch 9 6 9 0.9 0.9 Fin 0.90
Branch 10 6 10 0.1 0 Fin 0.00
Branch 11 5 7 0 0 Ch 0.18
Branch 12 5 14 0 0.6 Yes Fin 0.60
Branch 13 7 12 0.2 0.9 Fin 0.90
Branch 14 7 13 0.8 0 Fin 0.00
Branch 15 8 15 0.6 1 Fin 1.00
Branch 16 8 16 0.4 0.4 Fin 0.40

3-53. a. The decision table for Chris Dunphy along with the expected profits or expected
monetary values (EMVs) for each alternative are shown on the next page.

Table for Problem 3-53a

Return in $1,000

NO. OF WATCHES
EVENT 1 EVENT 2 EVENT 3 EVENT 4 EVENT 5
Probability 0.10 0.20 0.50 0.10 0.10 Expected
Profit
100,000 100 110 120 135 140 119.5
150,000 90 120 140 155 170 135.5
200,000 85 110 135 160 175 131.5
250,000 80 120 155 170 180 144.5
300,000 65 100 155 180 195 141.5
350,000 50 100 160 190 210 145
400,000 45 95 170 200 230 151.5
450,000 30 90 165 230 245 151
500,000 20 85 160 270 295 155.5
b. For this decision problem, Alternative 9, stocking 500,000, gives the highest expected
profit of $155,500.
c. The expected value with perfect information is $175,500, and the expected value of
perfect information (EVPI) is $20,000.
d. The new probability estimates will give more emphasis to event 2 and less to event 5. The
overall impact is shown below. As you can see, stocking 400,000 watches is now the best
decision with an expected value of $140,700.
Return in $1,000:

NO. OF WATCHES
EVENT 1 EVENT 2 EVENT 3 EVENT 4 EVENT 5
Probability 0.100 0.280 0.500 0.100 0.020 Expected Profit
100,000 100 110 120 135 140 117.1
150,000 90 120 140 155 170 131.5
200,000 85 110 135 160 175 126.3
250,000 80 120 155 170 180 139.7
300,000 65 100 155 180 195 133.9
350,000 50 100 160 190 210 136.2
400,000 45 95 170 200 230 140.7
450,000 30 90 165 230 245 138.6
500,000 20 85 160 270 295 138.7
3-54. a. Decision under uncertainty.
b.
Population Population Row
Same Grows Average
Large wing –85,000 150,000 32,500
Small wing –45,000 60,000 7,500
No wing 0 0 0
ternative: large wing.
c. Best al
3-55. a.
 Weighted
Population Population Average with
Same Grows α = 0.75
Large wing –85,000 150,000 91,250
Small wing –45,000 60,000 33,750
No wing 0 0 0
b. Best decision: large wing.
c. No.
3-56. a.
No Mild Severe Expected
Congestion Congestion Congestion Time
Tennessee 15 30 45 25
Back roads 20 25 35 24.17
Expressway 30 30 30 30
Probabilities (30 days)/(60 (20 days)/(60 (10 days)/(60
days) = 1/2 days) = 1/3 days) = 1/6

b. Back roads (minimum time used).

c. Expected time with perfect information: 15 × 1/2 + 25 × 1/3 + 30 × 1/6 = 20.83

minutes Time saved is 3 13 ; minutes.

3-57. a. EMV can be used to determine the best strategy to minimize costs. The QM for
Windows solution is provided. The best decision is to go with the partial service
(maintenance) agreement.
Solution to 3-57a
Probabilities 0.2 0.8
Maint. No Maint. Expected Row Row
Cost ($) Cost ($) Value Minimum Maximum
($) ($) ($)
No Service Agreement 3,000 0 600 0 3,000
Partial Service Agreement 1,500 300 540 0 1,500
Complete Service 500 500 500 500 500
Agreement
Column best 500 0 500
The minimum expected monetary value is $500 given by Complete Service Agreement
b. The new probability estimates dramatically change Sim’s expected values (costs). The best
decision given this new information is to still go with the complete service or maintenance
policy with an expected cost of $500. The results are shown in the table.
Solution to 3-57b
Probabilities 0.8 0.2
Does Not Expected
Needs Repair Need Repair Value
($) ($) ($)
No Service Agreement 3,000 0 2,400
Partial Service Agreement 1,500 300 1,260
Complete Service 500 500 500
Agreement
Column best 500

3-58. We can use QM for Windows to solve this decision making under uncertainty problem.
We have shown probability values for the equally likely calculations. As you can see, the
maximax decision is Option 4 based on the $30,000, and the maximin decision is Option 1 based
on the 5,000. As seen in the table, the equally likely decision is Option 3 because the average
value for this is $5750. Solution to 3-58
Prob. 0.25 0.25 0.25 0.25
Judge Trial Court Arbitration Equall Row Row
y
Likely Min. Max.
Option 1 5,000 5,000 5,000 5,000 5,000 5,000 5,000
Option 2 10,000 5,000 2,000 0 4,250 0 10,000
Option 3 20,000 7,000 1,000 –5,000 5,750 –5,000 20,000
Option 4 30,000 15,000 –10,000 –20,000 3,750 –20,000 30,000
Column best 5,750 5,000 30,000
SOLUTION TO STARTING RIGHT CASE
This is a decision-making-under-uncertainty case. There are two events: a favorable market
(event 1) and an unfavorable market (event 2). There are four alternatives, which include do
nothing (alternative 1), invest in corporate bonds (alternative 2), invest in preferred stock
(alternative 3), and invest in common stock (alternative 4). The decision table is presented. Note
that for alternative 2, the return in a good market is $30,000 (1 + 0.13)5 = $55,273. The return in
a good market is $120,000, (4 x $30,000) for alternative 3, and $240,000, (8 x $30,000) for
alternative 4. Payoff table
Laplace Hurwicz
Event 1 Event 2 Average Value Minimum Maximum Value
Alternative 1 0 0 0.0 0 0 0.00
Alternative 2 55,273 –10,000 22,636.5 –10,000 55,273 –2,819.97
Alternative 3 120,000 –15,000 52,500.0 –15,000 120,000 –150.00
Alternative 4 240,000 –30,000 105,000.0 –30,000 240,000 –300.00
Regret table
Maximum
Alternative Event 1 Event 2 Regret
Alternative 1 240,000 0 240,000
Alternative 2 184,727 10,000 184,727
Alternative 3 120,000 15,000 120,000
Alternative 4 0 30,000 30,000
a. Sue Pansky is a risk avoider and should use the maximin decision approach. She should
do nothing and not make an investment in Starting Right.
b. Ray Cahn should use a coefficient of realism of 0.11. The best decision is to do nothing.
c. Lila Battle should eliminate alternative 1 of doing nothing and apply the maximin
criterion. The result is to invest in the corporate bonds.
d. George Yates should use the equally likely decision criterion. The best decision for
George is to invest in common stock.
e. Pete Metarko is a risk seeker. He should invest in common stock.
f. Julia Day can eliminate the preferred stock alternative and still offer alternatives to risk
seekers (common stock) and risk avoiders (doing nothing or investing in corporate bonds).
SOLUTIONS TO INTERNET CASES
Drink-at-Home, Inc. Case
Abbreviations and values used in the following decision trees:
Normal—proceed with research and development at a normal pace.
6 Month—Adopt the 6-month program: if a competitor’s product is available at the end of 6
months, then copy; otherwise proceed with research and development.
8 Month—Adopt the 6-month program: proceed for 8 months; if no competition at 8 months,
proceed; otherwise stop development.
Success or failure of development effort:
Ok—Development effort ultimately a success
No—Development effort ultimately a failure
Column:
S— Sales revenue
R— Research and development expenditures
E— Equipment costs
I—Introduction to market costs
Market size and Revenues:
Without With
Competition Competition
S—Substantial (P = 0.1) $800,000 $400,000
M—Moderate (P = 0.6) $600,000 $300,000
L—Low (P = 0.3) $500,000 $250,000
Competition:
C6—Competition at end of 6 months (P = .5)
No C6—No competition at end of 6 months (P = .5)
C8—Competition at end of 8 months (P = .6)
No C8—No competition at end of 8 months (P = .4)
C12—Competition at end of 12 months (P = .8)
No C12—No competition at end of 12 months (P = .2)
The optimal program is to adopt the 6-month program. However, as the expected value is
negative, perhaps another alternative of doing nothing should be considered.

Ruth Jones’ Heart By-Pass Operation Case

 1. Expected survival rate with surgery (5.95 years) exceeds the nonsurgical survival rate of
2.70 years. Surgery is normal.
Ski Right Case
a. Bob can solve this case using decision analysis. As you can see, the best decision is to
have Leadville Barts make the helmets and have Progressive Products do the rest with an
expected value of $2,600. The final option of not using Progressive, however, was very close
with an expected value of $2,500.
EXPECTE
D

POOR AVERAGE GOOD EXCELLENT VALUE

Probabilities 0.1 0.3 0.4 0.2
Option 1—PP –5,000 –2,000 2,000 5,000 700
Option 2—LB and PP –10,000 –4,000 6,000 12,000 2,600
Option 3—TR, LB, and PP –15,000 –10,000 7,000 13,000 900
Option 4—CC and PP –30,000 –20,000 10,000 30,000 1,000
Option 5—LB, CC, and TR –60,000 –35,000 20,000 55,000 2,500
With Perfect Information –5,000 –2,000 20,000 55,000 17,900
The maximum expected monetary value is $2,600 given by Option 2 – LB and PP.
b and c. The opportunity loss and the expected value of perfect information is presented. The
EVPI is $15,300.
Expected value with perfect information = $17,900
Expected monetary value = $2,600
Expected value of perfect information = $15,300
Opportunity loss table
POOR MARKET AVERAGE GOOD EXCELLENT EXPECTED
VALUE
Probabilities 0.1 0.3 0.4 0.2
Option 1 0 0 18,000 50,000 17,200,

Option 2 5,000 2,000 14,000 43,000 15,300,

Option 3 10,000 8,000 13,000 42,000 17,000
Option 4 25,000 18,000 10,000 25,000 88,000
Option 5 55,000 33,000 0 0 15,400
 d. Bob was logical in approaching this problem. However, there are other alternatives that
might be considered. One possibility is to sell the idea and the rights to produce this product
to Progressive Products for a fixed amount.

STUDY TIME CASE

Raquel must decide which of the three cases (1, 2, or 3) to study, and how much time to devote
to each. We will assume that it is equally likely (a 1/3 chance) that each case is chosen. If she
misses at most 8 points (let’s assume she is correct in thinking that) on the other parts of the
exam, scoring 20 points or more on this part will give her an A for the course. Scoring 0 or 12
points on this portion of the exam will result in a grade of B for the course. The table gives the
different possibilities – points and grade in the course.
Case 1 Case 2 Case 3
on on Exam on EV Grade in Course
Exam Exam
Study 1, 2, 3 12 B 12 B 12 B 12 B
Study 1,2 20 A 20 A 0B 40/3 A 2/3 chance or B 1/3 chance
Study 1,3 20 A 0B 20 A 40/3 A 2/3 chance or B 1/3 chance
Study 2,3 0B 20 A 20 A 40/3 A 2/3 chance or B 1/3 chance
Study 1 25 A 0B 0B 25/3 A 1/3 chance or B 2/3 chance
Study 2 0B 25 A 0B 25/3 A 1/3 chance or B 2/3 chance
Study 3 0B 0B 25 A 25/3 A 1/3 chance or B 2/3 chance
Thus, Raquel should study 2 cases since this will give her a 2/3 chance of an A in the course.
Notice that this also has the highest expected value. This is a situation in which the values
(points) are not always indicative of the importance of the result since 0 or 12 results in a B for
the course, and 20 or 25 results in an A for the course.