John Carpenter is considering investing some money he won at a game show. The following payoff table gives the profits that would be realized during the next year for each of three investment alternatives John is considering:
State of Nature
Decision Alternative Good Economy Poor Economy
Stock market 80,000 -20,000
Bonds 30,000 20,000
CDs 23,000 23,000
Probability 0.5 0.5
a. What decision would maximize expected profits?
b. What is the maximum amount that should be paid for a perfect forecast of the economy?