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HO25-PS4-Solutions

# HO25-PS4-Solutions - MS&E 352 Handout#25 Decision Analysis...

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MS&E 352 Handout #25 Decision Analysis II March 11 th , 2009 ______________________________________________________________________ ______________________________________________________________________ Page 1 of 5 Problem Set #4 Problem Set #4 - Solutions 0% 5% 10% 15% 20% 25% 30% 35% 0-5 6-10 11-15 16-20 21-25 26-30 31-35 36-40 41-45 46-50 51-55 56-60 61-65 66-70 71-75 76-80 81-85 86-90 91-95 96-100 Grade Distribution

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MS&E 352 Handout #25 Decision Analysis II March 11 th , 2009 ______________________________________________________________________ ______________________________________________________________________ Page 2 of 5 Problem Set #4 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: ALTERglyph817ATIVE 1: ALTERglyph817ATIVE 2: ALTERglyph817ATIVE 3: ALTERglyph817ATIVE 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). 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 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
MS&E 352 Handout #25 Decision Analysis II March 11 th , 2009 ______________________________________________________________________ ______________________________________________________________________ Page 3 of 5 Problem Set #4 (analytical solution) or your spreadsheet with curves. Summarize your results in a table.

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HO25-PS4-Solutions - MS&E 352 Handout#25 Decision Analysis...

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