Question: *Draw a decision tree for each problem 8-13 c, 8-26 a&b 8-4 Discuss the differences between decision making under certainty, decision making under risk, and

*Draw a decision tree for each problem 8-13 c, 8-26 a&b

8-4

Discuss the differences between decision making under certainty, decision making under risk, and decision making under uncertainty.

8-13

In the environment of increased competition, a fitness club executive is considering the purchase of additional equipment.His alternatives, outcomes, and payoffs (profits) are shown in the following table:

Equipment

Favorable Market

Unfavorable Market

Acme

$400,000

-$175,000

Standard

$280,000

-$90,000

High Pro

$95,000

-$15,000

a.If the executive is an optimistic decision maker, which alternative will he likely choose?

b.If the executive is a pessimistic decision maker, which alternative will he likely choose?

c.Market research suggests the chance of a favorable market for fitness clubs is 76%.If the executive uses this analysis, which alternative will he likely choose?

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