Suppose that the cost of a major repair without the extended warranty in Example 15-8 is changed to $1000. 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 0.1 0.5 0.4 States Actions SI S3 S2 $200 $1,200 $200 $200 $0 $300