Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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Chapter 9, Problem 67P
Summary Introduction
To explain: The possible course of action for Person X.
Decision making under uncertainty:
It is the making of decisions with the presence of imperfect information present on hand. In this situation, there can be more than one possible outcome.
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Your company needs to make an important decision thatinvolves large monetary consequences. You have listedall of the possible outcomes and the monetary payoffsand costs from all outcomes and all potential decisions.You want to use the EMV criterion, but you realize thatthis requires probabilities and you see no way to findthe required probabilities. What can you do?
Suppose that you want to invest $10,000 in the stock market by buying shares in one of two companies: A and B. Shares in company A though risky, could yield a 50% return on investment during the next year. If the stock market if conditions are not favorable (bear market) the stock may lose 20% of it value. Company B provides safe investments with 15% return in a bull market and only 5% in a bear market Ali the applications you have consulted are predicting a 60% chance for a bull market and 40% for a bear market. Where you invest your money? Construct a decision tree.
Using Excel Spreadsheet and formulas for this problem (make sure cell references are unique to your table). Provide all techniques practiced previously: five (5) techniques for Decisions Making under Uncertainty, EMV, EOL, and EVPI. Use α = 0.7 for the Hurwicz. Use the .50 for the probability of a Good Economy and .50 for the probability of a Poor Economy. Show the work on an Excel file.
STATE OF NATURE
DECISION ALTERNATIVE
GOOD ECONOMY
POOR ECONOMY
Sotck market
80,000
-20,000
Bonds
30,000
20,000
CDs
23,000
23,000
Chapter 9 Solutions
Practical Management Science
Ch. 9.2 - Prob. 1PCh. 9.2 - Prob. 2PCh. 9.2 - Prob. 3PCh. 9.3 - Prob. 4PCh. 9.3 - Prob. 5PCh. 9.3 - Prob. 6PCh. 9.3 - Prob. 7PCh. 9.4 - Explain in some detail how the PrecisionTree...Ch. 9.4 - Prob. 9PCh. 9.4 - Prob. 10P
Ch. 9.5 - Prob. 11PCh. 9.5 - Prob. 12PCh. 9.5 - Prob. 13PCh. 9.5 - Prob. 17PCh. 9.5 - Prob. 18PCh. 9.5 - Prob. 19PCh. 9.5 - Prob. 21PCh. 9.5 - The model in Example 9.3 has only two market...Ch. 9.6 - Prob. 26PCh. 9.6 - Prob. 27PCh. 9.6 - Prob. 28PCh. 9 - Prob. 30PCh. 9 - Prob. 31PCh. 9 - Prob. 32PCh. 9 - Prob. 34PCh. 9 - Prob. 36PCh. 9 - Prob. 37PCh. 9 - Prob. 38PCh. 9 - Prob. 39PCh. 9 - Prob. 46PCh. 9 - Prob. 48PCh. 9 - Prob. 53PCh. 9 - Prob. 67PCh. 9 - Prob. 68PCh. 9 - Prob. 69PCh. 9 - Prob. 70PCh. 9 - Prob. 71PCh. 9 - Prob. 72PCh. 9 - Prob. 73PCh. 9 - Prob. 74PCh. 9 - Prob. 75PCh. 9 - Prob. 76PCh. 9 - Prob. 77P
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