What is the purpose of the 'Calculate payoffs' step in the Expected Value template?

• A. Determine the costs
• B. Identify actions
• C. Calculate the potential payoffs of each outcome for each action
• D. Maximize the chosen outcome

Answer: (C)

The important idea here is that this step is about turning each action into concrete numeric outcomes for every possible state of the world. In an Expected Value analysis, you set up a payoff for every action under every possible scenario, creating a complete set of potential results. Those payoffs are what you’ll weight by how likely each state is, so you can compute the expected value for each action. This step isn’t about listing costs, nor about deciding which actions exist, nor about choosing the best action yet. It’s about providing the actual payoff numbers that feed the EV calculation.