Morley Properties is planning to build a condominium development on St. Simons Island, Georgia. The company is trying to decide between building a small, medium, or large development. The payoffs received for each size of development will depend on the market demand for condominiums in the area, which could be low, medium, or high. The payoff matrix for this decision problem is:

The owner of the company estimates a 21.75% chance that market demand will be low, a 35.5% chance that it will be medium, and a 42.75% chance that it will be high.
a. What decision should be made according to the maximax decision rule?
b. What decision should be made according to the maximin decision rule?
c. What decision should be made according to the minimax regret decision rule?
d. What decision should be made according to the EMV decision rule?
e. What decision should be made according to the EOL decisionrule?

Transcribed Image Text:

Market Demand Size of Development L Small Medium Large Low 400 200 -400 400 500 300 (Payoffs in $1000s) Medium High 400 500 800