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    Decision Theory - Sheet1

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    studentone
    Under the maximax approach, the best decision is to manufacture keyboards to achieve the highest potential sales of 110. Under the maximin approach, the best decision is to buy keyboards from a local manufacturer to minimize losses at -30 in the worst case. Under the Laplace approach, the best decision is to buy keyboards from Japan to achieve the average sales of 45. Under the Hurwicz approach (α=60%), the best decision is to manufacture keyboards to achieve the weighted average sales of 54. Under the minimax regret approach, the best decision is to buy keyboards from Japan to minimize the maximum regret of 30.

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    Decision Theory - Sheet1

    Uploaded by

    studentone
    39 views2 pages
    Under the maximax approach, the best decision is to manufacture keyboards to achieve the highest potential sales of 110. Under the maximin approach, the best decision is to buy keyboards from a local manufacturer to minimize losses at -30 in the worst case. Under the Laplace approach, the best decision is to buy keyboards from Japan to achieve the average sales of 45. Under the Hurwicz approach (α=60%), the best decision is to manufacture keyboards to achieve the weighted average sales of 54. Under the minimax regret approach, the best decision is to buy keyboards from Japan to minimize the maximum regret of 30.

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    Under the maximax approach, the best decision is to manufacture keyboards to achieve the highest potential sales of 110. Under the maximin approach, the best decision is to buy keyboards from a local manufacturer to minimize losses at -30 in the worst case. Under the Laplace approach, the best decision is to buy keyboards from Japan to achieve the average sales of 45. Under the Hurwicz approach (α=60%), the best decision is to manufacture keyboards to achieve the weighted average sales of 54. Under the minimax regret approach, the best decision is to buy keyboards from Japan to minimize the maximum regret of 30.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    39 views2 pages

    Decision Theory - Sheet1

    Uploaded by

    studentone
    Under the maximax approach, the best decision is to manufacture keyboards to achieve the highest potential sales of 110. Under the maximin approach, the best decision is to buy keyboards from a local manufacturer to minimize losses at -30 in the worst case. Under the Laplace approach, the best decision is to buy keyboards from Japan to achieve the average sales of 45. Under the Hurwicz approach (α=60%), the best decision is to manufacture keyboards to achieve the weighted average sales of 54. Under the minimax regret approach, the best decision is to buy keyboards from Japan to minimize the maximum regret of 30.

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    CASE 1

    1. MAXIMAX 2. MAXIMIN

    Future Sales Level Future Sales Level


    Alternatives Best Payoff Alternatives Worst
    Low Moderate High Low Moderate High
    Manufacture -30 20 110 110 Manufacture -30 20 110 -30
    Buy from Local 20 60 50 60 Buy from Local 20 60 50 20
    Buy from Japan 10 45 80 80 Buy from Japan 10 45 80 10

    Decision: Manufacture Decision: Buy from Local


    Under the maximax approach, the best decision for the company is to Under the maximin approach, the best decision for the company is to buy
    manufacture its own keyboard, the company will have higher sales with a from a local manufacturer for the keyboard, even if the demand will not be
    higher cost. as high but is less costly.

    3. LAPLACE 4. HURWICZ (𝛼 = 60% as coefficient of realism)

    Future Sales Level Future Sales Level Weighted


    Alternatives Average Alternatives
    Low Moderate High Low Moderate High Average
    Manufacture -30 20 110 33 Manufacture -30 20 110 54
    Buy from Local 20 60 50 43 Buy from Local 20 60 50 44
    Buy from Japan 10 45 80 45 Buy from Japan 10 45 80 52

    Decision: Buy from Japan 𝛼 = 0.6 Weighted Ave = (110*0.6)+((-30)*0.4)


    1- 𝛼 = 0.4 (best x 𝛼) + (worst x 1-𝛼)
    Under the laplace approach, the best decision for the company is to buy its
    keyboard from Japan so that the company will have higher sales.
    Decision: Manufacture
    Under the hurwicz approach, the best decision for the company is to
    manufacture its own keyboard, the company will have higher sales with a
    higher cost.
    5. MINIMAX REGRET

    Future Sales Level


    Alternatives
    Low Moderate High
    Manufacture -30 20 110
    Buy from Local 20 60 50
    Buy from Japan 10 45 80

    Regret = Best payoff - Payoff received


    Future Sales Level Maximun
    Alternatives
    Low Moderate High Regret
    Manufacture 50 40 0 50
    Buy from Local 0 0 60 60
    Buy from Japan 10 15 30 30

    Decision: Buy from Japan

    Under the minimax regret approach, the best decision for the company is to
    buy the keyboard from Japan for the company to have higher sales.

    CASE 2

    in (1,000,000)
    Program Responses
    Air Program
    Accepted Failed
    Cost 1 1
    Income 3 -1.3
    Probability 59 - 41

    Expected Value = 52.7


    Decision: Air the Program

    Solution:
    Accepted = ((59-41)*3) + (-1.3)

    Answer: 52.7

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