emv

Format: emv( p1, v1, p2, v2, ... )

Arguments: (real) p1, p2, ... Probability that the paired value will be realized

(real) v1, v2, ... Paired value

Returns: (real) The Expected Monetary Value of some uncertain event

Description: Emv is designed to be used in building decision tree event nodes. The probabilities and values must be supplied in pairs. Emv verifies that all individual probabilities lie in the range 0 to 1 and that all probabilities add to 1 (an error of up to 0.001 is allowed when verifying the probability values). The emv primitive causes the probabilities p1, p2, ... to be displayed on associated branches in the Tree Editor when constructing decision trees.

The Expected Monetary Value is calculated using the formula

where

   and

if risk aversion is not applied, or

   and

if risk aversion is applied.

The constant k is set using the Set Risk Aversion tool. You can access this tool by pointing to Decision Tree in the Tools menu and clicking Set Risk Aversion (Utility).

Examples: Try:=-100->emv(50%,Succeed,50%,Fail) = Create a branch node

Succeed:=150-> = Create an end node

Fail:=0-> = Create an end node

Try = -25

Succeed = 50  (-100+150)

Fail = -100  (-100+0)

See Also: max, Accumulate, mkv