A Manufacturing Company Introduces Two Product Alternatives The Probabilities for the State of Nature Are P(Up) =

A manufacturing company introduces two product alternatives. The table below provides profit payoffs in thousands of dollars.
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​ $$\begin{array} { | c | c | c | c | } \hline { \text { Bet on } } && { \text { State of Nature (Demand) } } \\\hline & \mathrm { Up } & \text { Stable } & \text { Down } \\\hline \text { Product A } & 11 & 8 & 8 \\\hline \text { Product B } & 8 & 10 & 12 \\\hline\end{array}$$ The probabilities for the state of nature are P(Up) = 0.35, P(Stable) = 0.35, and P(Down) = 0.30.
a. Use a decision tree to recommend a decision.
b. Use EVPI to determine whether the manufacturing company should attempt to obtain a better estimate of the response.

Correct Answer:

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a. EV(node 2) = (0.35)(11) + (0.35)(8) ...

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