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Probabilistic budgeting

JJasper10y ago
Dear John, Hello! I have noticed that in BPP Passcard, the section of probabilistic budgeting contains 'most likely', 'worst possible' and 'best possible'. Are they the same to 'Maximin', 'Minimax regret' and 'Maximax'? Could you please explain this issue as I have not seen this in your lecture (maybe I missed it in your lecture)? Thanks a lot!
John MoffatJohn MoffatTutor10y ago#1
Its really just expected values. The idea is to to prepare the budget for different outcomes and then calculate the expected value using the probabilities of the different outcomes. (Expected values are in the syllabus, but the term 'probabilistic budgeting' won't be used in the exam.)
JJasper10y ago#2
Dear John, Thank you very much for your prompt reply! In addition, I have noticed a difference regarding the calculation of EVs. For example, doing a research could yield revenue of £600 but investment of research is £100 (success rate is 60%) however the loss is £200 (when it is unsuccessful). On this occasion, should I calculate the EVs as EV = (£600 X 0.6 - 200 X 0.4) - £100? I found the deduction has being excluded from the multiplication of probability. However, in some cases, the 'investment' or 'loss' has been taken into account in the EVs (say they are being deducted before multiplication of relevant probability). Does it exist? If it is the case, could you please explain why? Thank you in advance for your support! With kind regards,
John MoffatJohn MoffatTutor10y ago#3
It doesn't make any difference (and never will!). ((600 x 0.6) - (200 x 0.4)) - 100 gives exactly the same answer as (500 x 0.6) - (300 x 0.4) :-)
JJasper10y ago#4
Dear John, It seems to be a silly question = = Thanks a lot! Have a nice day!
John MoffatJohn MoffatTutor10y ago#5
You are welcome :-)
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