e) Develop a decision tree. Assume each outcome is equally likely, then find the highest EMV.
• A.3
Clay Whybark, a soft-drink vendor at Hard Rock Cafe’s annual Rockfest, created a table of conditional
values for the various alternatives (stocking decision) and states of nature (size of crowd):
Alternatives
Large Stock
Average Stock
Small Stock
Big
$ 22000
$ 14000
$ 9000
States of Nature ( demand)
Average
$ 12000
$ 10000
$ 8000
Small
-$ 2000
$ 6000
$ 4000
The probabilities associated with the states of nature are 0.3 for a big demand, 0.5 for an average
demand, and 0.2 for a small demand.
a) Determine the alternative that provides Clay Whybark the greatest expected monetary value
(EMV).
b) Compute the expected value of perfect information (EVPI).