Applied Decision Method

. Consider the following payoff table that represents the profits earned for each alternative (A, B, and C) under the states of nature S1, S2, and S3.

S1        S2        S3
A        $60       $145    $120
B        $75       $125    $110
C        $95       $85      $130

Using the criterion of realism and an alpha value of 0.7, what would be the highest expected payoff?

 

 

 

2.   Consider the following payoff table that represents the profits earned for each alternative (A, B, and C) under the states of nature S1, S2, and S3.

S1        S2        S3
A        $60       $145    $120
B        $75       $125    $110
C        $95       $85      $130

Using the maximax criterion, what would be the highest expected payoff? (Points : 3)

 

 

 

          3.  A plant manager is considering buying additional stamping machines to accommodate increasing demand. The alternatives are to buy 1 machine, 2 machines, or 3 machines. The profits realized under each alternative are a function of whether their bid for a recent defense contract is accepted or not. The payoff table below illustrates the profits realized (in $000’s) based on the different scenarios faced by the manager.

Alternative           Bid Accepted           Bid Rejected
Buy 1 machine              $10                           $5
Buy 2 machines            $30                           $4
Buy 3 machines            $40                           $2

Refer to the information above. Assume that based on historical bids with the defense contractor, the plant manager believes that there is a 65% chance that the bid will be accepted and a 35% chance that the bid will be rejected.

What is the expected value under perfect information (EVPI)? (Points : 3)