lav/pid-2908953-dt-content-rid-19853460_1/courses/STAI-201-2 20 3. A manager of

Question

lav/pid-2908953-dt-content-rid-19853460_1/courses/STAI-201-2 20 3. A manager of a company has constructed following payoff table for different alternatives State of nature Alternatives Alternative 1 Alternative 2 Alternative 3 EVENT 1 EVENT 2 50 30 -40 -20 Which decision manager should take using following methods? a. b. c. Maximax. Criterion of realism (Hurwicz) if coefficient of realism is 0.7. Minimax regret decisions 4. From the following payoff table State of Nature Alternatives Alternative 1 Alternative 2 Alternative 3 Probability unfavorable -40 -20 0 0.3 avorable 50 30 0.7 a. b. What decision will you take using Expected monetary value method? What decision will you take using Expected Opportunity loss method?

Explanation / Answer

Solution

(a) Maximax

Alternative 1 : 50 (max)

Alternative 2 : 30

Alternative 3 : 0

So Decision : Alternative 1

(b) Realism criterion

Alternative 1 : (0.7)(50)+(0.3)(-40) = 23(i.e. coeff*max + (1-coeff)*min)

Alternative 2: (0.7)(30)+(0.3)(-20) = 15

Alternative 3 : 0

Decision : ALternative 1

(c) Minimax

Alt 1 : 50

Alt 2 : 30

Alt 3 : 0 (min)

So decision : Alternative 3

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