Question: Question 1 (Decision Making: Risk & Uncertainty) The following table is a payoff matrix associated with a farmers decision to purchase a pump for irrigation

Question 1 (Decision Making: Risk & Uncertainty)

The following table is a payoff matrix associated with a farmers decision to purchase a pump for irrigation or to depend on the rains.

Future Crop Demand State of Nature High Medium Low Decision Alternative/Prob. 0.30 0.45 0.25 Do not Irrigate 9m 5m 3m 1.5hp Pump 11m 6m -4m 3.0hp Pump 16m 8m -6m 5.0hp Pump 18m 12m -7m

Determine which alternative will be chosen under

(a) expected value (EV) criterion?

(b) Maximin?

(c) Maximax?

(d) Draw up a regrets table and use it to determine which alternative will be chosen under the minimax regret decision criterion.

(e) Estimate the expected value of perfect information (EVPI)

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