Decision Analysis -- Comparing Automobile Leases (Continued) Three different car
ID: 3403740 • Letter: D
Question
Decision Analysis -- Comparing Automobile Leases (Continued)
Three different car dealers are offering a three-year lease on a Nissan Altima. You have constructed the payoff table shown below:
Payoff Table
P(5,000) = 0.10
P(10,000) = 0.15
P(15,000) = 0.20
P(20,000) = 0.25
P(25,000) = 0.30
Dealer
5,000 mi/yr
10,000 mi/yr
15,000 mi/yr
20,000 mi/yr
25,000 mi/yr
Andy
–$18,480.00
–$27,480.00
–$36,480.00
–$45,480.00
–$54,480.00
Bob
–$18,450.00
–$25,200.00
–$31,950.00
–$40,950.00
–$49,950.00
Charlie
–$16,800.00
–$22,800.00
–$32,550.00
–$42,300.00
–$52,050.00
Which dealer should be used according to the MAXIMAX decision rule?
Which dealer should be used according to the MAXIMIN decision rule?
Which dealer should be used to maximize the EMV if there is an equally-likely criteria?
Which dealer should be used to maximize the EMV using the probabilities shown in the table?
Use the values in the payoff table to construct a regret table.
Hint #3: In a regret table; all regrets are positive.
Regret Table
P(5,000) = 0.10
P(10,000) = 0.15
P(15,000) = 0.20
P(20,000) = 0.25
P(25,000) = 0.30
Dealer
5,000 mi/yr
10,000 mi/yr
15,000 mi/yr
20,000 mi/yr
25,000 mi/yr
Andy
Bob
Charlie
Which dealer should be used according to the MINIMAX REGRET decision rule?
Which dealer should be used to minimize the EOL if there is an equally-likely criteria?
Which dealer should be used to minimize the EOL using the probabilities shown in the table?
P(5,000) = 0.10
P(10,000) = 0.15
P(15,000) = 0.20
P(20,000) = 0.25
P(25,000) = 0.30
Dealer
5,000 mi/yr
10,000 mi/yr
15,000 mi/yr
20,000 mi/yr
25,000 mi/yr
Andy
–$18,480.00
–$27,480.00
–$36,480.00
–$45,480.00
–$54,480.00
Bob
–$18,450.00
–$25,200.00
–$31,950.00
–$40,950.00
–$49,950.00
Charlie
–$16,800.00
–$22,800.00
–$32,550.00
–$42,300.00
–$52,050.00
Explanation / Answer
Solution :
Payoff table :
( a ) Dealer Andy should be used according to the MAXIMAX decision rule.
( b ) Dealer Charlie should be used according to the MAXIMIN decision rule.
( c ) Dealer Charlie should be used to maximize the EMV if there is an equally-likely criteria.
( d ) Dealer Andy should be used to maximize the EMV using the probabilities shown in the table.
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Regret Table :
( a ) Dealer Charlie should be used according to the MINIMAX REGRET decision rule.
( b ) Dealer Charlie should be used to minimize the EOL if there is an equally-likely criteria.
( c ) Dealer Charlie should be used to minimize the EOL using the probabilities shown in the table.
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