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The following is a payoff table giving profits for various situations. States of Nature Alternatives A B...

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Basic Math

The following is a payoff table giving profits for varioussituations.

States of Nature Alternatives A B C D

Alternative 1 120 140 170 160

Alternative 2 210 130 140 120

Alternative 3 120 140 110 190

Do Nothing 0 0 0 0

a. What decision would a pessimist make?

b. What decision would an optimist make?

c. What decision would be made based on the realism criterion,where the coefficient of realism is 0.60?

d. What decision would be made based on the equally likelycriterion?

e. What decision would be made based on the minimax regretcriterion? Suppose now that the probabilities of the 4 states ofnature are known, that is, the probability to observe A is 30%, theprobability to observe B is 35%, the probability to observe C is20%, and the probability to observe D is 15%. Answer thefollowing

f. What decision would be made based on the expected monetaryvalue?

g. What is the EVPI

Answer & Explanation Solved by verified expert
3.7 Ratings (592 Votes)
a A pessimist would make a decision based on the maximin payoff ie the maximum of the minimum payoffs that he would receive under the 4 different alternatives The minimum payoffs are 1201201100 So we can see that the maximum of the minimum are 120 under alternative 1 2 however if we look at the    See Answer
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