(No excel needed here) You have the following payoff table for a decision analys
ID: 2762509 • Letter: #
Question
(No excel needed here)
You have the following payoff table for a decision analysis problem. Payoffs are in units of thousands of dollars of profit.
State of Nature
State of Nature
State of Nature
State of Nature
Alternatives
S1
S2
S3
S4
D1
35
50
45
40
D2
45
40
30
60
D3
20
35
40
80
Which decision alternative would you choose using an optimistic approach?
Which decision alternative would you choose using a conservative approach?
Which decision alternative would you choose using the Minimax Regret approach?
(Assume that P(S1)=0.2, P(S1)=0.1, and P(S3)=0.4 and P(S4)=0.3.) Which decision alternative would you choose using the EV approach?
State of Nature
State of Nature
State of Nature
State of Nature
Alternatives
S1
S2
S3
S4
D1
35
50
45
40
D2
45
40
30
60
D3
20
35
40
80
Explanation / Answer
Answer: An optimistic decision maker would use the optimistic (maximax) approach. We choose the decision that has the largest single value in the payoff table.
Answer: A conservative decision maker would use the conservative (maximin) approach. List the minimum payoff for each decision. Choose the decision with the maximum of these minimum payoffs.
Answer: For the minimax regret approach, first compute a regret table by subtracting each payoff in a column from the largest payoff in that column.
Payoff Table Decision State of Nature State of Nature State of Nature State of Nature Maximum Recommended Decision Alternatives S1 S2 S3 S4 Payoff D1 35 50 45 40 50 D2 45 40 30 60 60 D3 20 35 40 80 80 D3 Best Payoff 80Related Questions
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