Concept explainers
The saleswoman in Example 2 has been offered a new job that has a fixed weekly salary of $290.
a. According to Decision Theory, what choice should the saleswoman make?
b. In Example 2, the saleswoman's most likely weekly commission was $300. With her new job, she will always make $290 per week. This implies that she would be better off with the old job. Is this reasoning more or less warranted than that used in part (a). Why?
Example 2 COMPUTING AN EXPECTED VALUE By analyzing her sales records, a
saleswoman has found that her weekly commissions have the probabilities in
Figure 3.21. Find the saleswoman’s expected commission.
Commission | 0 | $100 | $200 | $300 | $400 |
Probability | 0.05 | 0.15 | 0.25 | 0.45 | 1 |
FIGURE 3.21 Commission data for Example 2.
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