Question: A small building contractor has recently experienced two successive years in which work opportunities exceeded the firm's capacity. The contractor must now make a decision

A small building contractor has recently experienced two successive years in which work opportunities exceeded the firm's capacity. The contractor must now make a decision on capacity for next year. Estimated profits under each of the two possible states of nature are as shown in the table below. Which alternative should be selected if the decision criterion is:

  1. Maximax?
  2. Maximin?
  3. Laplace?
  4. Minimax regret?

NEXT YEAR'S

DEMAND

Alternative

Low

High

Do nothing

$50*

$60

Expand

20

80

Subcontract

40

70

*Profit in $ thousands.

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