2/cfi/120!/4/4@O.00:52.9 100 with a favorable market is too high. How much lower would this figure have to be for Ken to change his decision made in part b? Mickey Lawson is considering investing some 3-20 money that he inherited. The following payoff table gives the profits that would be realized during the next year for each of three investment alternatives Mickey is considering: # 3- STATE OF NATURE POOR GOOD DECISION ALTERNATIVE ECONOMY ECONOMY -20,000 20,000 23,000 0.5 80,000 Stock market 30,000 Bonds 23,000 CDs Probability 0.5 (a) What decision would maximize expected profits? (b) What is the maximum amount that should be paid for a perfect forecast of the economy? :3-21 Develop an opportunity loss table for the investment problem that Mickey Lawson faces in Problem 3-20. What decision would minimize the expected oppor- tunity loss? What is the minimum EOL?
Addition Rule of Probability
It simply refers to the likelihood of an event taking place whenever the occurrence of an event is uncertain. The probability of a single event can be calculated by dividing the number of successful trials of that event by the total number of trials.
Expected Value
When a large number of trials are performed for any random variable ‘X’, the predicted result is most likely the mean of all the outcomes for the random variable and it is known as expected value also known as expectation. The expected value, also known as the expectation, is denoted by: E(X).
Probability Distributions
Understanding probability is necessary to know the probability distributions. In statistics, probability is how the uncertainty of an event is measured. This event can be anything. The most common examples include tossing a coin, rolling a die, or choosing a card. Each of these events has multiple possibilities. Every such possibility is measured with the help of probability. To be more precise, the probability is used for calculating the occurrence of events that may or may not happen. Probability does not give sure results. Unless the probability of any event is 1, the different outcomes may or may not happen in real life, regardless of how less or how more their probability is.
Basic Probability
The simple definition of probability it is a chance of the occurrence of an event. It is defined in numerical form and the probability value is between 0 to 1. The probability value 0 indicates that there is no chance of that event occurring and the probability value 1 indicates that the event will occur. Sum of the probability value must be 1. The probability value is never a negative number. If it happens, then recheck the calculation.
question 3-20
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