Question

At a decision point in a decision tree, which machine would you select when trying to maximize payoff when the anticipated benefit of selecting machine a is $45,000 with a probability of 90%; the expected benefit of selecting machine b is $80,000 with a probability of 50% and the expected benefit of selecting machine c is $60,000 with a probability of 75%?

Answer 1

We have to calculate the benefit of every machine and to multiply it by its probability:
Machine A: $45,000 with a probability of 90%.
$45,000 * 0.9 = $40,500.
Machine B: $80,000 with a probability of 50%.
$80,000 * 0.5 = $40,000.
Machine C: $60,000 with a probability of 75%.
$60,000 * 0.75 = $45,000.
C > A > B.
Answer: We would select machine C.