154 The matrix shown in the table illustrates the profits earned by a decision maker for...
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154 The matrix shown in the table illustrates the profits earned by a decision maker for various combinations of acts chosen and states of nature oc- curring. DECISION THEORY AND INFERENCE Act Chosen A B C D I 20 25 30 35 11 10 15 20 25 State of Nature III 30 20 -10 0 IV 0 -5 10 10 (a) What act should be chosen if the decision maker invokes the follow- ing decision criteria: maximax, maximin, equally likely? (b) Convert the profit matrix to a regret matrix. What decision should be made if the criterion is minimax of regret? (e) If the decision maker's coefficient of optimism is 0.5, what act should be chosen? (d) If the probabilities of I, II, III, and IV are 0.1, 0.2, 0.3, and 0.4, respectively, what act should be chosen to maximize expected mone- tary value? (e) Under what decision criteria would act C be chosen? Why? 154 The matrix shown in the table illustrates the profits earned by a decision maker for various combinations of acts chosen and states of nature oc- curring. DECISION THEORY AND INFERENCE Act Chosen A B C D I 20 25 30 35 11 10 15 20 25 State of Nature III 30 20 -10 0 IV 0 -5 10 10 (a) What act should be chosen if the decision maker invokes the follow- ing decision criteria: maximax, maximin, equally likely? (b) Convert the profit matrix to a regret matrix. What decision should be made if the criterion is minimax of regret? (e) If the decision maker's coefficient of optimism is 0.5, what act should be chosen? (d) If the probabilities of I, II, III, and IV are 0.1, 0.2, 0.3, and 0.4, respectively, what act should be chosen to maximize expected mone- tary value? (e) Under what decision criteria would act C be chosen? Why?
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SOLUTION To solve the decision problem described in the question lets go through each part step by step a Decision criteria 1 Maximax This criterion selects the act with the maximum possible payoff fo... View the full answer
Related Book For
Management Accounting Information for Decision-Making and Strategy Execution
ISBN: 978-0137024971
6th Edition
Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young
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