Practical Management Science
6th Edition
ISBN: 9781337406659
Author: WINSTON, Wayne L.
Publisher: Cengage,
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Chapter 9.5, Problem 11P
Summary Introduction
To determine: The lowest probability to make the opposite decision best.
Introduction: Simulation model is the digital prototype of the physical model that helps to
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Using the following table, perform ALL FIVE of the techniques for Decision Making under Uncertainty: Maximax, Maximin, Hurwicz Realism (α = 0.7), LaPlace and Minimax Regret. Use the .50 for the probability of a Good Economy and .50 for the probability of a Poor Economy. You must show your work.
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
Using the following table, perform ALL FIVE of the techniques for Decision Making under Uncertainty: Maximax, Maximin, Hurwicz Realism (α = 0.7), LaPlace and Minimax Regret. Use the .50 for the probability of a Good Economy and .50 for the probability of a Poor Economy. You must show your work for obtaining the points.
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
You often hear about the trade-off between risk and reward. Is this trade-off part of decision making under uncertainty when the decision maker uses theEMV criterion? For example, how does this work in investment decisions?
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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- 2. Using the following table, perform ALL FIVE of the techniques for Decision Making under Uncertainty: Maximax, Maximin, Hurwicz Realism (α = 0.7), LaPlace and Minimax Regret. You must show your work for obtaining the points. PROFIT ($) STRONG MARKET FAIR MARKET POOR MARKET Large facility 550,000 110,000 -310,000 Medium-sized facility 300,00 129,000 -100,000 Small facility 200,000 100,000 -32,000 No facility 0 0 0arrow_forwardUsing 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 23,000arrow_forwardYour 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?arrow_forward
- Pareto criterion is a very useful criterion for social choices in many real-world situations since most policy changes produce both gainers and losers TRUE OR FALSEarrow_forwardSoftware development is an inherently risky and uncertain process. For example, there are many examples of software that couldnt be finished by the scheduled release datebugs still remained and features werent ready. (Many people believe this was the case with Office 2007.) How might you simulate the development of a software product? What random inputs would be required? Which outputs would be of interest? Which measures of the probability distributions of these outputs would be most important?arrow_forwardIf 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?arrow_forward
- Your company must decide whether to introduce a new product. The sales of the product will be either at a high (success) or low (failure) level. The conditional value for this decision is as follows Decision High Low Introduce $4,000,000 -$2,000,000 Do Not Introduce 0 0 Probability 0.3 0.7 You have the option to conduct a market survey to sharpen you market demand estimate. The survey costs $200,000. The survey provides incomplete information about the sales, with three possible outcomes: (1) predicts high sales, (2) predicts low sales, or (3) inconclusive. Such surveys have in the past provided these results Result High Low Predicts High 0.4 0.1 Inconclusive 0.4 0.5 Predicts Low 0.2 0.4 c) Draw the complete decision tree, including the survey option. Explain where the values on the decision tree come fromarrow_forwardA company is considering whether to market a new product. Assume, for simplicity, that if this product is marketed, there are only two possible outcomes: success or failure. The company assesses that the probabilities of these two outcomes are p and 1 2 p, respectively. If the product is marketed and it proves to be a failure, the company will have a net loss of $650,000. If the product is marketed and it proves to be a success, the company will have a net gain of $1,150,000. If the company decides not to market the product, there is no gain or loss. The company can first survey prospective buyers of this new product. The results of the consumer survey can be classified as favorable, neutral, or unfavorable. Based on similar surveys for previous products, the company assesses the probabilities of favorable, neutral, and unfavorable survey results to be 0.5, 0.3, and 0.2 for a product that will eventually be a success, and it assesses these probabilities to be 0.2, 0.3, and 0.5 for a…arrow_forwardConsider a public project with the cost of 500. There are three individuals with the following benefits for the public good: v1=400, v2=200 and v3=0. Which of the following statement is false about the VCG (Vickrey-Clarke-Groves) mechanism? None of the options The budget deficit is 200 VCG mechanism is strategy-proof The tax for individual 3 is equal to 0 The tax for individual 1 is equal to 300arrow_forward
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