5) The following is a payoff table. States of Nature 85 0110 90 ternative Altern

Question

5) The following is a payoff table. States of Nature 85 0110 90 ternative Alternative 2 Alternative 3 50 75 80 What decision should be made based on the minimax regret criterion? 6) The following is a payoff table giving profits for various situations. States of Nature Alternatives BC Alternative l 100| 120| 180 Alternative 2 2001 1001 50 Alternative 3 120 140 120 The probabilities for states of nature A, B, and C are 0.3, 0.5, and 0.2, respectively. If a perfect forecast of the future were available, what is the expected value with this perfect information? 7) The following is a payoff table giving profits for various situations. States of Nature A B C Alternatives Alternative 1 100 120 180 Alternative 2 200 100 50 Alternative 3 120| 140| 120 Do Nothing The probabilities for states of nature A, B, and C are 0.3, 0.5, and 0.2, respectively. If a perfect forecast of the future were available, what is the expected value of perfect information (EVPI)?

Explanation / Answer

Ans:

6)

Expected value without perferct information=best EMV=130

Expected value with perfect information=200*0.3+140*0.5+180*0.2=60+70+36=166

7) EVPI=166-130=36

5)

alt 1 will be preffered,as it minimize the maximum regret(opportunity loss).

A B C EMV alt1 100 120 180 126 alt2 200 100 50 120 alt3 120 140 120 130 alt4 0 0 0 0 0.3 0.5 0.2

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