Question 2: Problem solving

Kenneth Brown is the principal owner of Brown Oil, Inc. At the present time, Kenneth is forced to consider purchasing some more equipment for Brown Oil to increase the quality and productivity and to face the increasing competition. He can choose to purchase from five types of new machines. His alternatives are shown in the following decision table:

	Outcomes
Alternative Decisions (Machine type)	O1: Favorable Market	O2: Moderate Market	O3: Unfavorable Market
Sub 100	$ 300000	$ 150000	$ -200000
Sub 200	$ 350000	$ 200000	$ 200000
Oil J	$ 250000	$ 100000	$ -100000
Texan	$ 75000	$ 50000	$ 0
Texan 100	$ 72000	$ 70000	$ 5000
Probabilities	0.2	0.5	0.3

For example, if Kenneth purchases a Sub 100 and if there is a favorable market, he will realize a profit of $300,000. On the other hand, if the market is unfavorable, Kenneth will suffer a loss of $200,000.

Kenneth has always been a very pessimistic decision maker. In case Kenneth has no information of the market condition probabilities.

Questions:

1. What type of decision environment is Kenneth facing?

2. What decision criterion should he use?

3. What alternative is best?