Decisions with Discrete Random Variables: Part 2
To Lease or Not To Lease (Continued)Using the expectation and variance from the last video, we can now make a decision as to which project was better.To do this, we first look at their expected cash flows. We would prefer a project to have a higher expected cash flow. In the long run, if we always took projects with higher expected cash flows we would be better off. Next, we look at the variance of the cash flows. We would prefer lower variance because it means that there is less risk of large variations from our expectation.To summarise, we prefer higher expected cash flows and lower variance. This example was nice because one of the options had a higher expectation and lower variance. In the next video, Adrian will discuss how we make a decision if one project has higher expected cash flows but also higher variance.
Data Analytics for Decision Making: An Introduction to Using Excel
Our purpose is to transform access to education.
We offer a diverse selection of courses from leading universities and cultural institutions from around the world. These are delivered one step at a time, and are accessible on mobile, tablet and desktop, so you can fit learning around your life.
We believe learning should be an enjoyable, social experience, so our courses offer the opportunity to discuss what you’re learning with others as you go, helping you make fresh discoveries and form new ideas.
You can unlock new opportunities with unlimited access to hundreds of online short courses for a year by subscribing to our Unlimited package. Build your knowledge with top universities and organisations.