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HO15-PS4

# HO15-PS4 - MS&E 352 Handout#15 Decision Analysis II...

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MS&E 352 Handout #15 Decision Analysis II February 19 th , 2009 ______________________________________________________________________ ______________________________________________________________________ 02/24/06 Page 1 of 1 Problem Set #4 Problem Set #4 Due Thursday, 11 AM, March 5 th Problem 1 – Deterministic & Probabilistic Dominance [40 points] You are hired as a consultant by Mr. Burbank, a successful MS&E alum. Mr. Burbank is considering investing in one of the following four deals: ALTERNATIVE 1: ALTERNATIVE 2: ALTERNATIVE 3: ALTERNATIVE 4: Also, Mr. Burbank has mentioned that he will only have enough resources to invest in one of these deals. Question 1: [10 points] Assuming that Mr. Burbank is risk-neutral, which of these alternatives should he pick? Call this alternative OA (for Optimal Alternative). 1 6 0.1 12 0.3 8.5 0.6 4 0.1 17 0.5 9 0.3 1 0.1 -6 0.1 11.5 0.2 8 0.3 4 0.3 3 0.1 1

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MS&E 352 Handout #15 Decision Analysis II February 19 th , 2009 ______________________________________________________________________ ______________________________________________________________________ 02/24/06 Page 2 of 2 Problem Set #4 Question 2: [30 points] Study the dominance of OA with respect to the other alternatives. You should limit yourself to the study of deterministic dominance and of 1 st , 2 nd and 3 rd order dominance. Show your computations (analytical solution) or your spreadsheet with curves. Summarize your
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HO15-PS4 - MS&E 352 Handout#15 Decision Analysis II...

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