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 | | The likelihood ratio when sales is 150,000 is the probability of 150,000 given aL divided by the probability of 150,000 given aH. |
 | | Likelihood Ratios Sales $150,000$200,000Pr(salesaL).8.2Pr(salesaH).4.6Likelihood ratioF(.8,.4) = 2F(.2,.6) = F(1,3) The likelihood ratio for sales of 150,000 is larger than for sales of 200,000 for the exact reason given above: aH increases the probability of 200,000 relative to aL (from.2 to.6) and decreases the probability of 150,000 (from.8 to.4). |
 | | Likelihood Ratios Sales$150,000$200,000$250,000Pr(salesaL).4.3.3Pr(salesaH).2.5.3Likelihood ratioF(.4,.2) = 2F(.3,.5) =.6F(.3,.3) = 1 Since the largest likelihood ratio is 2 the manager's payment when sales is 150,000 is the lowest. |
| www.cob.ohio-state.edu /~young_53/Likelihoods.doc (807 words) |
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