Problem 2 You are given the following payoff table (in units of thousands of dol

Question

Problem 2 You are given the following payoff table (in units of thousands of dollars) for a decision analýsis problem. Consider the following payoff matrix. State of Nature Decision 170 180 0.3 A1 220 200 0.6 110 150 0.1 Prior Probability 0 a. Which alternative should be chosen under the maximin payoff criterion? b. Which alternative should be chosen under the maximax payoff criterion? c. Which alternative should be chosen under the expected value criterion? d. Which alternative should be chosen under the minimax regret payoff criterion? e. Do sensitivity analysis graphically with respect to the prior probabilities of states Si and S2 (without changing the prior probability of state S3) to determine the crossover point where the decision shifts from one alternative to the other. Then use algebra to determine this crossover point. f Repeat (e) for prior probabilities of states Si and S g. Repeat (e) for prior probabilities of states S2 and Ss h. If you feel that the true probabilities of the states of nature are within 10 percent of the given prior probabilities, which alternative would you choose?

Explanation / Answer

Solution

(a) A1 = 110

A2 = 150 (min)

Max = A2

(b) Maximax

A1 = 220

A2 = 200

Decision = A1

(c) Expected value:

A1 = 220*0.6+170*0.3+110*0.1 = 194

A2 = 189

decision = A1

(d) minimax

A1 = 220

A2 = 200

min = A2 decision

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.