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Decision Analysis

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QUESTION 1 Decision Analysis Show all calculations to support your answers. You may follow the methods shown in the mp4 on Decision Analysis for a way to do part (b) of this question if you wish. 20 marks - 10 for (a), 10 for (b). a) People frequently use three heuristics to assess probabilities and to predict values. Identify and describe these heuristics and identify and explain a bias to which each of these heuristics lead. b) Martha Jones is considering investing money in three alternative investments over a one-year period. Below are the expected profits from each investment given assumptions about the state of the economy: Decision Alternative Good Economy Poor Economy Stock market $200,000 -$60,000 Bonds $80,000 $45,000 Term deposit $45,000 $35,000 i) If Martha is an optimist which investment should she choose? ii) If Martha is a pessimist which investment should she choose? iii) Following the criterion of regret which investment should she choose? iv) If Martha believes that there is a 65% chance of a good economy which investment should she choose? v) What is the expected value of perfect information about the state of the economy?