ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The value of each chance node is found by multiplying the values of the uncertain alternatives by their probabilities of occurring and sum the results. This value is known as Expected Monetary Value (EMV).

Detailed explanation-2: -The Expected Value (EV) shows the weighted average of a given choice; to calculate this multiply the probability of each given outcome by its expected value and add them together eg EV Launch new product = [0.4 x 30] + [0.6 x-8] = 12-4.8 = £7.2m.

Detailed explanation-3: -Decision trees are organized as follows: An individual makes a big decision, such as undertaking a capital project or choosing between two competing ventures. These decisions, which are often depicted with decision nodes, are based on the expected outcomes of undertaking particular courses of action.

Detailed explanation-4: -A probability tree diagram is a handy visual tool that you can use to calculate probabilities for both dependent and independent events. To calculate probability outcomes, multiply the probability values of the connected branches. To calculate the probability of multiple outcomes, add the probabilities together.

Detailed explanation-5: -One of the advantages of Bayes’ Theorem is that it allows the decision maker to know with certainty all probability values of major outcomes. it is the optimal method for decision making under risk. it replaces EMV analysis.