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Step 2.
Calculate the expected opportunity loss for each alternative.
EOL(Alt. 1) = 0*0.7 + 200*0.1 + 30*0.2 = 26;
EOL(Alt. 2) = 30*0.7 + 0*0.1 + 20*0.2 = 25;
EOL(Alt. 3) = 40*0.7 + 0*0.1 + 10*0.2 = 30;
EOL(Alt. 4) = 170*0.7 + 20*0.1 + 0*0.2 = 121.
Step 3.
Pick up the alternative with Minimum EOL, which is Alt. 2 , with EOL= 25.
Part 2.
Calculations in Part 1 can be put in the extended opportunity loss table.
(1) Put your results in Part 1 into the extended opportunity loss table below.
Extended opportunity losses (regrets) table:
States of Nature
A
B
C
Alternatives P(A)=0.7 P(B)=0.1 P(C)=0.2
1
0
200
30
2
30
0
20
3
40
0
10
4
170
20
0
Expected Opportunity
Loss
(EOL)
0*0.7 + 200*0.1 + 30*0.2 = 26
30*0.7 + 0*0.1 + 20*0.2 = 25
40*0.7 + 0*0.1 + 10*0.2 = 30
170*0.7 + 20*0.1 +0*0.2 = 121
(2) Circle and label the best decision and its EOL in the table.
Part 3.
Compare the result we have here to those we had in Exercise on EMV and EVPI.
1. The decision from the Minimum EOL Approach is the same as the decision from
the Maximum EMV Approach is.
a. True
b. False
2. Minimum EOL = EVPI.
a. True
b. False