Revised March 2011
Chapter 13 Assignments:
Problem 1
Suppose that a decision maker faced with four decision alternatives and four states
of nature develops the following profit payoff table.
State of Nature
Decision Alternative
d1
d2
d3
d4
S1
14
11
9
8
S2
9
10
10
10
S3
10
8
10
11
S4
5
7
11
13
a. If the decision maker knows nothing about the probabilities of the four states of
nature, what is the recommended decision using the optimistic, conservative, and
minimax regret approaches?
b. Which approach do you prefer? Explain. Is establishing the most appropriate
approach before analyzing the problem important for the decision maker? Explain.
c. Assume that the payoff table provides cost rather than profit payoffs. What is the
recommended decision using the optimistic, conservative, and minimax regret
approaches?
Problem 2
Consider the following profit payoff table. Suppose that the decision maker obtained
the probability assessments P(S1) = 0.65, P(S2) = 0.15, and P(S3) = 0.20. Use the
expected value approach to determine the optimal decision.
State of Nature
Decision Alternative
d1
d2
S1
250
100
S2
100
100
S3
25
75
Problem 3
Amy Lloyd is interested in leasing a new Saab and has contacted three automobile
dealers for pricing information. Each dealer offered Amy a closedend 36month
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 Spring '11
 abc
 Conditional Probability, Probability, Amy Lloyd, Nature S1 S2

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