Decision Analysis

Only available on StudyMode
  • Download(s) : 89
  • Published : April 4, 2013
Open Document
Text Preview
Chapter 3 – Question 28

(a) Develop a decision table for this decision?

Decision Alternatives| Market (‘000)|
| Good| Fair| Poor|
Small| 50| 20| –10|
Medium| 80| 30| –20|
Large| 100| 30| –40|
Very Large| 300| 25| –160|

(b) What is the maximax decision?

Decision Alternatives| Market (‘000)| Maximax decision shall be the maximum value of a row/decision alternatives| Maximax Decision Alternative| | Good| Fair| Poor| | |
Small| 50| 20| –10| | 50|
Medium| 80| 30| –20| | 80|
Large| 100| 30| –40| | 100|
Very Large| 300| 25| –160| | 300|

If maximax decision is to be chosen: The decision shall be to open VERY LARGE gasoline station.

(c) What is the maximin decision?

Decision Alternatives| Market (‘000)| Maximin decision shall be the most maximum value of a maximin decision alternatives| Maximin Decision Alternative| | Good| Fair| Poor| | |
Small| 50| 20| –10| | –10|
Medium| 80| 30| –20| | –20|
Large| 100| 30| –40| | –40|
Very Large| 300| 25| –160| | –160|

If maximin decision is to be chosen: The decision shall be to open SMALL gasoline station.

(d) What is the equally likely decision?
Decision Alternatives| Market (‘000)| Equally Likely (Row Average)| Equally Likely Decision Alternative| | Good| Fair| Poor| = (Max – Min)/2| |
Small| 50| 20| –10| = [50 + (-10)] / 2| 20|
Medium| 80| 30| –20| = [80 + (-20)] / 2| 30|
Large| 100| 30| –40| = [100 + (-40)] / 2| 30|
Very Large| 300| 25| –160| = [300 + (-160)] / 2| 70| If equally likely decision is to be chosen: The decision shall be to open VERY LARGE gasoline station.

(e) What is the criterion of realism decision? Use an value of 0.8. Decision Alternatives| Market (‘000)| Criterion of Realism | Criterion of Realism Decision Alternative| | Good| Fair| Poor| = (Max) + (1-)(Min)| |

Small| 50| 20| –10| = (0.8)(50) + (0.2)(-10)| 38| Medium| 80| 30| –20| = (0.8)(80) + (0.2)(-20)| 60| Large| 100| 30| –40| = (0.8)(100) + (0.2)(-40)| 72| Very Large| 300| 25| –160| = (0.8)(300) + (0.2)(-160)| 208| If criteria of realism decision is to be chosen: The decision shall be to open VERY LARGE gasoline station.

(f) Develop an opportunity loss table.
Decision Alternatives| Working for Opportunity LossMarket (‘000)| Opportunity LossMarket (‘000)| | Good| Fair| Poor| Good| Fair| Poor|
Small| 300 - 50| 30 - 20| -10-(-10)| 250| 10| 0| Medium| 300 - 80| 30 - 30| -10-(-20)| 220| 0| 10| Large| 300 - 100| 30 - 30| -10-(-40)| 200| 0| 30| Very Large| 300 - 300| 30 - 25| -10-(-160)| 0| 5| 150|

(g) What is the minimax regret decision?
Decision Alternatives| Opportunity LossMarket (‘000)| Minimax Regret (Max of the Row)| | Good| Fair| Poor| |
Small| 250| 10| 0| 250|
Medium| 220| 0| 10| 220|
Large| 200| 0| 30| 200|
Very Large| 0| 5| 150| 150|
Chapter 3 – Question 34

(a) Construct a decision tree to help analyse the problem?

1
Payoff
$100,000

-$40,000
Construct Clinic
30,000
Do Nothing
30,000
Favorable Market (0.5)
30,000
Non Favorable Market (0.5)
30,000
EMV for no clinic is $0
30,000
Payoff
$0

1
Payoff
$100,000

-$40,000
Construct Clinic
30,000
Do Nothing
30,000
Favorable Market (0.5)
30,000
Non Favorable Market (0.5)
30,000
EMV for no clinic is $0
30,000
Payoff
$0

(b) What should the medical professionals do?

Medical professionals shall be lead by the highest Expected Monetary Value (EMV)

EMV if Construct Clinic:
EMV = (Probability of FM x Expected Return) + (Probability of NFM x Expected Return) EMV = (0.5)($100,000) + (0.5)($-40,000)
EMV = $30,000

EMV if DO NOT Construct Clinic
EMV = 0

Therefore, the...
tracking img