The following payoff table shows the profit for a decision problem with two states ofnature and three decision alternatives,DecisionState of NatureLternatives1S2D11030D2-520D360-10Identify the decision taken under the following approaches:(1) Pessimistic(2) Optimistic(3) Equal probability(4) Regret(5) Hurwicz criterion.Note : The decision maker's degree of optimism (a) being 0.6.

The decision criteria in a business backdrop are those variables or attributes that are significant…

Answered: The following payoff table shows the…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter9: Decision Making Under Uncertainty

Section9.2: Elements Of Decision Analysis

Problem 1P

See similar textbooks

Similar questions

The following payoff table shows a profit for a decision analysis problem with two decision alternatives and three states of nature. In order to get full credit, show your all work done step by step including cell calculations using excel functions. State of Nature Decion Alternatives s1 s2 s3 d1 250 100 50 d2 100 75 100 a) Construct a decision tree for this problem. b) Suppose that the decision-maker obtains the probabilities P(s1)=0.65, P(s2)=0.15, and P(s3)=0.20. Use the expected value approach to determine the optimal decision.
Which investment should Warren make under each of the following criteria? a. Maximax criterion. b. Maximin criterion. c. Maximum likelihood criterion. d. Bayes’ decision rule. e. The investor decides that Bayes’ decision rule is his most reliable decision criterion. He believes that 0.1 is just about right as the prior probability of an improving economy, but is quite uncertain about how to split the remaining probabilities between a stable economy and a worsening economy. Therefore, he now wishes to do some sort of sensitivity analysis with respect to these latter two prior probabilities. If he still wants to choose the alternative from the Bayes’ decision rule (part d): e1. How much would be the maximum amount of the prior probability of a stable economy? e2. How much would be the minimum amount of the prior probability of a worsening economy?
Many decision problems have the following simplestructure. A decision maker has two possible decisions,1 and 2. If decision 1 is made, a sure cost of c isincurred. If decision 2 is made, there are two possibleoutcomes, with costs c1 and c2 and probabilities p and1 2 p. We assume that c1 , c , c2. The idea is thatdecision 1, the riskless decision, has a moderate cost,whereas decision 2, the risky decision, has a low costc1 or a high cost c2.a. Calculate the expected cost from the riskydecision.b. List as many scenarios as you can think of thathave this structure. (Here’s an example to get youstarted. Think of insurance, where you pay a surepremium to avoid a large possible loss.) For eachof these scenarios, indicate whether you wouldbase your decision on EMV or on expected utility.
If you want to invest in a project that cost $3.5 million. As we are unsure about the future demand, there is a 40% probability of high demand with a present value for the project $3 million. There is a 25% probability of moderate demand with a present value of $2.5 million. In addition, there is a 35% probability of low demand with a present value is $1.5 million. Draw a decision tree for this problem. What is the expected net present value of the business? Should you invest? Explain. Assume that you can expand the project by investing another $0.6 million after you learn the true future demand state. This would make the present value of the business $3.9 million in the high‐demand state, $3.5 million in the moderate demand state, and $1.80 million in the low demand state. Draw a decision tree to reflect the option to expand. Evaluate the alternatives. What is the net present value of the business if you consider the option to expand? How valuable is the option to expand?
Zaki has been thinking about starting his own petrol station. He’s problem is to decide how large his petrol station should be. The annual return that will be achieved depends on whether the economy is good, fair, or poor. A payoff table has been constructed to illustrate this situation: (Business Quantitative Analysis) Determine using the best investment using the following decision criteria: a) Maximax criterion b) Maximin criterion c) Equally Likely criterion d) Minimax Regret criterion The probabilities of good market, average market, and poor market are 0.4, 0.5, and 0.1 respectively. Construct an expected opportunity loss table. Using minimum EOL as the decision criterion, determine the best alternative
A payoff table is given as: S1 S2 S3 D1 250 750 500 D2 300 -250 1200 D3 500 500 600 (a) What choice should be made by the optimistic decision maker? (b) What choice should be made by the conservative decision maker? (c) What decision should be made under minimal regret? (d) If the probabilities of d1, d2, and d3 are .2, .5, and .3, respectively, then what choice should be made under expected value?
A manager is deciding whether to build a small or a large facility. Much depends on the future demand that the facility must serve, and demand may be small or large. The manager knows with certainty the payoffs that will result under each alternative, shown in the following payoff table. The payoffs (in $000) are the present values of future revenues minus costs for each alternative in each event. Possible Future DemandAlternative Low HighSmall facility 200 270Large facility 160 800Do nothing 0 0What is the best choice if future demand will be low?
Referring to the payoff table below answer the questions given below: State of Nature Decision Alternatives S1 S2 S2 S3 D1 7 4.5 5 2.5 D2 6 5 8 7 D3 4.5 5 5 5.5 D4 4 5 5.5 6.5 Construct decision tree for this problem Under the condition of uncertainty, what would be the recommended decision using the optimistic and pessimistic approaches?
A landlord can either lease for one or two years or sell offices outrightly for K100 million with payoffs as follows: Lease -100 50 150 Sell 100 100 100 The probability of rejecting is 30%, leasing for one year is 50% and for two years 20%. Required: What is the optimal decision strategy if perfect information were available? What is the expected value of perfect information? A decision maker is looking to minimising costs through three alternative decisions a1 , b2 and c3 under two states of nature/events S1 and S2 with S1 having a probability of 30% . For a1 payoffs for s1 K100 million and s2 K540 million For a2 payoff for s1 K150 million and s2 –K50 million For a3 payoff for s1 K350 million and s2 K320 million Required: Find EMV and recommend the course of action Find the…
In the environment of increased competition, a fitness club executive is considering the purchase of additional equipment. His alternatives, outcomes, and payoffs (profits) are shown in the following table: (a). If the executive is an optimistic decision maker, which alternative will he likely choose? (b). if the executive is a pessimistic decision maker, which alternative will he likely choose? (c). Market research suggests the chance of a favorable market for fitness clubs is 76%. If the executive uses this analysis, which alternative will he likely choose? I have provided the data table for the problem.
In the environment of increased competition, a fitness club executive is considering the purchase of additional equipment. His alternatives, outcomes, and payoffs (profits) are shown in the following table: (a). If the executive is an optimistic decision maker, which alternative will he likely choose? (b). if the executive is a pessimistic decision maker, which alternative will he likely choose? (c). Market research suggests the chance of a favorable market for fitness clubs is 76%. If the executive uses this analysis, which alternative will he likely choose? Please provide an excel sheet with calculations as well
Suppose that a decision is faced with three decision alternatives and four states of nature.The following profit payoff table is constructed: ALTERNATIVES STATE OF NATURE S1 S2 S3 S4 A1 18 12 15 8 A2 15 14 10 11 A3 13 16 19 15 Assuming that the decision maker has no knowledge about the probabilities of occurrenceof the four states of nature, find the decisions to be recommended under each of thefollowing criteria:i. Maximin criterionii. Maximax criterioniii. Minimax Reject criterioniv. Hurwicz criterion with α = 0.6

SEE MORE QUESTIONS

Recommended textbooks for you

Practical Management Science

Operations Management

ISBN:

9781337406659

Author:

WINSTON, Wayne L.

Publisher:

Cengage,

Practical Management Science

Operations Management

ISBN:

9781337406659

Author:

WINSTON, Wayne L.

Publisher:

Cengage,

SEE MORE TEXTBOOKS