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Expected Monetary Value (EMV).

Expected Monetary Value (EMV).

Practical Management Science
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
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I need to make a decision tree for this case study, but I'm unsure how to make the decision table. Also, I'm unsure how to find the Expected Monetary Value (EMV). 

Case Studies > Probability Analysis by the National Institute for Liver Diseases Ahmed Jamil, a robust 50-year-old real estate consultant living in the suburbs of Alexandria, Egypt, has been diagnosed by a specialist at the National Institute for Liver Diseases (Menofya) in Shebeen el Koum as having a decaying liver. Although he is otherwise healthy, Ahmed's liver problem could prove fatal if left untreated. Firm research data are not yet available to predict the likeli- hood of survival for a man of Ahmed's age and condition who does not have surgery. However, based on his own experience and recent medical journal articles, the internist tells him that if he elects to avoid surgical treatment of the liver problem, chances of survival will be approximately as follows: only a 60% chance of living 1 year, a 20% chance of surviving for 2 years, a 10% chance for 5 years, and a 10% chance of living to age 58. He places his probability of survival beyond age 58 without a liver transplant to be extremely low. The transplant operation, however, is a serious surgical procedure. Five percent of patients die during the operation or its recovery stage, with an additional 45% dying during the first year. Twenty percent survive for 5 years, 13% survive for 10 years, and 8%, 5%, and 4% survive, respectively, for 15, 20, and 25 years. Discussion Questions 1. Do you think that Ahmed should select the transplant operation? 2. What other factors might be considered?
Transcribed Image Text:Case Studies > Probability Analysis by the National Institute for Liver Diseases Ahmed Jamil, a robust 50-year-old real estate consultant living in the suburbs of Alexandria, Egypt, has been diagnosed by a specialist at the National Institute for Liver Diseases (Menofya) in Shebeen el Koum as having a decaying liver. Although he is otherwise healthy, Ahmed's liver problem could prove fatal if left untreated. Firm research data are not yet available to predict the likeli- hood of survival for a man of Ahmed's age and condition who does not have surgery. However, based on his own experience and recent medical journal articles, the internist tells him that if he elects to avoid surgical treatment of the liver problem, chances of survival will be approximately as follows: only a 60% chance of living 1 year, a 20% chance of surviving for 2 years, a 10% chance for 5 years, and a 10% chance of living to age 58. He places his probability of survival beyond age 58 without a liver transplant to be extremely low. The transplant operation, however, is a serious surgical procedure. Five percent of patients die during the operation or its recovery stage, with an additional 45% dying during the first year. Twenty percent survive for 5 years, 13% survive for 10 years, and 8%, 5%, and 4% survive, respectively, for 15, 20, and 25 years. Discussion Questions 1. Do you think that Ahmed should select the transplant operation? 2. What other factors might be considered?
Expert Solution
Explanation

Decision tree is a managerial tool which helps the decision maker find highest probable decision based in visualised manner. EMV indicating the possible return based on the probability of all state of nature. Based in the all available information, we can construct the decision tree and identify the EMV like given below. 

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