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%

Machine to select for maximum payoff:

Expected Outcomes:

A = $45,000 x 90% = $40,500

B = $80,000 x 50% = $40,000

C = $60,000 x 75 % = $45,000

C has the highest expected outcome of $45,000

Choose C.

Explanation:

Anticipated benefits:

A = $45,000 with pr = 90%

B = $80,000 with pr = 50%

C = $60,000 with pr = 75%

The expected benefit or outcome Machine A is obtained by multiplying the anticipated benefit with its probability of occurrence.  This gives a value that has been weighed.  The decision rule is to choose the machine with the highest outcome.

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

y=mx+b is the right slope of velocity carry the 4 over