Consider a decision analysis problem whose payoffs (in units of thousands of dollars) are given by the
Question:
Consider a decision analysis problem whose payoffs (in units of thousands of dollars) are given by the following payoff table.
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a. Which alternative should be chosen under the maximax criterion?
b. Which alternative should be chosen under the maximin criterion?
c. Which alternative should be chosen under the maximum likelihood criterion?
d. Which alternative should be chosen under Bayes' decision rule?
e. Use RSPE to construct and solve a decision tree for this problem.
f. Expanding the spreadsheet containing this decision tree as needed, perform sensitivity analysis with the decision tree by re-solving when the prior probability of S1 is 0.2 and again when it is 0.6.
g. Now perform this sensitivity analysis systematically by generating a data table that shows the best alternative (according to Bayes' decision rule) and the resulting expected payoff as the prior probability of S1 increases in increments of 0.04 from 0.2 to 0.6.
Step by Step Answer:
a Max A 1 80 Max A 2 50 Max A 3 60 Maximax 80 thousand when choosing altern...View the full answer
Introduction to Management Science A Modeling and Cases Studies Approach with Spreadsheets
ISBN: 978-0078024061
5th edition
Authors: Frederick S. Hillier, Mark S. Hillier
