Michael Brusco has inherited a large amount of money from his aunt. He wants to invest this money for two years and is considering several short-term investment alternatives. The returns on his investment will largely depend on the state of the economy in the next two years. The various investment alternatives and their returns are given in Table F.23.

Table F.23

Determine the best investment alternative for each of the following decision criteria:

1. The Laplace criterion

2. The maximin criterion

3. The maximax criterion

4. The Hurwicz criterion (α = 0.3)

5. The minimax regret criterion

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States of Nature (Economic Conditions) Favorable Decision Alternative Unfavorable Stable $500,000 -$300,000 Stocks Bonds $800,000 -$100,000 $50,000 -$170,000 -$220,000 $230,000 $350,000 Money market fund Real estate $110,000 $300,000 $420,000 $150,000 $500,000 $650,000 Hedge fund