# Consider the following payoff table that represents the profits earned for each alternative (A, B, and C) under the states of nature $1, S2, and S3. SI $2 $3 Alternative

Consider the following payoff table that represents the profits

earned for each alternative (A, B, and C) under the states of

nature $1, S2, and S3.

SI

$2

$3

Alternative A

$60

$145

$120

Alternative B

$75

$125

$110

Alternative C

$95

$85

$130

a) Using each of the below criterion what would be the

alternative selected and highest expected payoff in $ value?

1) Optimistic Approach

2) Pessimistic Approach

3) Realism (Hurwicz criterion) with an alpha value of 0.7

4) Laplace

5) Minmax regret Approach

b) Suppose the likelihood of occurrence of the three state of

natures are: S1 = 0.2; $2 = 0.3; & S3 = 0.5.

1) is the EMV of each alternative and which one to

select?

2) is the EVwPI and EVPI?

3) Construct the EOL table.

4) is the EOL for each alternative and which one to

select?

5) Verify that the minimum EOL is equal to EVPI

c) Suppose the payoff matrix is in fact a cost matrix. Redo

parts (a) & (b) above.

## Leave a Reply

Want to join the discussion?Feel free to contribute!