1. As manager for a store, you have to embark on new strategies to increase your...

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1. As manager for a store, you have to embark on new strategies to increase your profits. There are three possible strategies and the profits for each depend on two possible scenarios: high inflation, or low inflation. Historical data shows that the expected profits are: Pay-off table of profits Profit pay-offs Inflation outlook High Low Strategies 1. 1,000 2,000 2. 775 2,800 3. -200 3,500 a) b) answer in a). c) Assume complete uncertainty for the inflation outlook. Use the Laplace criterion to make a decision. Use the Wald criterion to make a decision. Compare with the Now assume probabilities can be assigned to the inflation outcomes: the probability of high inflation is 0.65 as estimated from data. Which strategy will you follow in this case if you use expected profits as benchmark? 1. As manager for a store, you have to embark on new strategies to increase your profits. There are three possible strategies and the profits for each depend on two possible scenarios: high inflation, or low inflation. Historical data shows that the expected profits are: Pay-off table of profits Profit pay-offs Inflation outlook High Low Strategies 1. 1,000 2,000 2. 775 2,800 3. -200 3,500 a) b) answer in a). c) Assume complete uncertainty for the inflation outlook. Use the Laplace criterion to make a decision. Use the Wald criterion to make a decision. Compare with the Now assume probabilities can be assigned to the inflation outcomes: the probability of high inflation is 0.65 as estimated from data. Which strategy will you follow in this case if you use expected profits as benchmark?