Decision Making Under Risk
Decision making when there are several possible states of nature and we know the probabilities associated with each possible state
Most popular method is to choose the alternative with the highest expected monetary value (EMV)
EMV(alternative i)= (payoff of first state of nature)
x (probability of first state of nature)
+ (payoff of second state of nature)
x (probability of second state of nature)
+ … + (payoff of last state of nature)
x (probability of last state of nature)