CH 13 Assignment - Revised March 2011 Chapter 13...

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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 mini-max 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 closed-end 36-month
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CH 13 Assignment - Revised March 2011 Chapter 13...

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