2. The director of career advising at the Charm City Community College wants to
ID: 338919 • Letter: 2
Question
2. The director of career advising at the Charm City Community College wants to use decision analysis to provide information to help students decide which 2-year degree program they should pursue. The director has set up the following payoff table for four of the most popular and successful degree programs at the college that shows the estimated 5-year gross income (in thousands of dollars) from each degree for three future economic conditions: Economic Condition Degree Program Recession Average Good Graphic design 165 185 185 Nursing 145 205 225 Real estate 135 205 245 Medical technology 175 175 175 the probabilities for the economic conditions are given by P(Recession) = 0.2, P(Average) = 0.4, and P(Good) = 0.4. a. Compute the expected value for each decision and select the best one. b. Compute the expected regret value for each decision and select the best one. c. Calculate and interpret the expected value of perfect information.
Explanation / Answer
Payoff for GD = 165x0.2+185x0.4+185x0.4 = 33+74+74 = 181
Payoff for RA = 145x0.2+205x0.4+225x0.4 =201
Payoff for Medical Technology = 175 ( 0.2+0.4+0.4) = 175
Option 2 is most feasible with highest payoff.
c.EV with perfect information = 0.2x175+0.4x205 +0.4x225 = 35+82+90 = 207
EV without perfect information = 201 ( as calculated earlier)
EV of perfect information = 207-201 =6
b. Regret approach - The regret table is given below.
Under Maximin regret criteria, we choose the maximum value of regret from all three columns and choose the least of them.
i.e. we have to choose the leastb value out of the row wise maximum values ( 40,30 and 50)
We see that 30 is the least value, so real estate ( option 2) will be the most optimum.
Course / economic condition P=0.2 P=0.4 P=0.4 Graphic design 165 185 185 Real estate 145 205 225 Medical technology 175 175 175Related Questions
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