Would utility be a better measure of payoff than actual costs?

A patient arrives at an emergency room complaining of abdominal pain. The ER physician must decide on whether to operate or to place the patient under observation for a non-appendix-related condition. If an appendectomy is performed immediately, the doctor runs the risk that the patient does not have appendicitis. If it is delayed and the patient does indeed have appendicitis, the appendix might perforate, leading to a more-severe case and possible complications. However, the patient might recover without the operation.

a. Construct a decision tree for the doctor’s dilemma.

b. How might payoffs and probabilities be determined?

c. Would utility be a better measure of payoff than actual costs? If so, how might utilities be derived for each path in the tree?

Solution:

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