Question: Allen Young has always been proud of his personal investment strategies and has done very well over the past several years. He invests primarily in the stock mar- ket. Over the past several months, however, Allen has become very concerned about the stock market as a good investment. In some cases it would have been bet- ter for Allen to have his money in a bank than in the market. During the next year, Allen must decide whether to invest $10,000 in the stock market or in a certificate of deposit (CD) at an interest rate of 9%. If the market is good, Allen believes that he could get a 14% return on his money. With a fair market, he expects to get an 8% return. If the market is bad, he will most likely get no return at all—in other words, the return would be 0%. Allen estimates that the probability of a good market is 0.4, the probability of a fair market is 0.4, and the probability of a bad market is 0.2, and he wishes to maximize his long—run average return.

1. Develop a decision table for this problem.
2. What is the best decision?

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