QUESTION 5

A professor has developed a payoff table that indicates the payoffs associated with a set of alternatives under two possible states of nature.

	Tenure	Fired
Teach at another university	$120,000	$20,000
Apply for the dean's job	$40,000	$180,000
Go into industry	$30,000	$250,000

a) If the manager uses maximin as the decision criterion, which of the alternatives should she choose?

(2 marks)

b) If the manager uses maximax as the decision criterion, which of the alternatives should she choose?

(2 marks)

c) If the manager uses minimax regret as the decision criterion, which of the alternatives would she choose? (4 marks)

d) Use the expected value criterion to select the best alternative. Assume that the probability of being fired is equal to 0.4. (6 marks)

e). Compute the expected value of perfect information assuming that the probability of being fired is equal to 0.4. (6 marks)