Reconsider the extended warranty decision in Example 15-8. Suppose that the probabilities of the major, minor, and no repair states are changed to 0.2, 0.4, and 0.4, respectively. Determine the decision selected based on the minimax, most probable, and expected cost criteria.

Example 15-8

For deciding whether to purchase an extended warranty on a vehicle, we use the following model. The actions are
a₁ = purchase extended warranty

a₂ = do not purchase extended waarranty

Assume that one of three states corresponding to a major, minor, or no repair can occur during the warranty period. We obtain probability estimates for each state. The states and associated probabilities are
s₁ = major repair, probability 0.1
s₂ = minor repair, probabilitty 0.5
s₃ = no repair, probability 0.4

Finally, the costs C_km can be presented in a decision evaluation table in which each row is an action and each column is a state. We assume that the extended warranty coverage costs $200. Table 15-12 formally relates the cost of each action and possible future state.

Table 15-12

Transcribed Image Text:

Probabilities 0.4 0.1 0.5 States Actions si S2 S3 $200 $1,200 $200 $200 $0 $300