Question: Background and Content: ABC purchased land that will be the site of a new luxury apartments. ABC commissioned preliminary architectural drawings for three different projects:

Background and Content: ABC purchased land that

Background and Content: ABC purchased land that will be the site of a new luxury apartments. ABC commissioned preliminary architectural drawings for three different projects: one with 30, one with 60, and one with 90 condominiums. The financial success of the project depends upon the size of the apartments and the chance event concerning the demand for the condominiums. The statement of the ABC decision problem is to select the size of the new apartments that will lead to the largest profit given the uncertainty concerning the demand for the apartments. Consider the following problem with three decision alternatives and two states of nature with the following payoff table representing profits: Decision alternatives Strong demand (S1) 8 State of Nature Weak demand (S2) 7 Small complex (d1) Medium complex (d2) Large complex (d3) 14 5 20 -9 Assessment Tasks: Answer all Three questions below. Show in the tables how decision makers with different approaches will make decisions: 1. Explain optimistic approach and using a table show how a decision maker will make a decision and which option he/she will choose. (6 Marks) 2. Explain conservative approach and using a table show how a decision maker will make a decision and which option he/she will choose. (6 Marks) 3. Explain minimax regret approach and using a table show how a decision maker will make a decision and which option he/she will choose. Note that you will need two tables for this approach. (8 Marks)

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