Answer (B) is correct . For decisions involving risk, the concept of expected value provides a rational means for selecting the best alternative. The expected value of a decision is found by multiplying the probability of each outcome by its payoff, and summing the products. The result is the long-term average payoff for repeated trials.
Answer (A) is incorrect because The conditional value is the return given a certain condition or state of nature.
Answer (C) is incorrect because The profit forgone by not choosing the best alternative is the opportunity cost.
Answer (D) is incorrect because Expected value represents the long-run average profit from an event.
|
