Questions 16 refer to the following
A family business is considering making an investment in its manufacturing operation. Three decisions are under consideration: (1) a large investment; (2) a medium investment; and (3) a small investment. The business believes that there are three possible future outcomes for its product: (1) increasing demand; (2) stable demand; and (3) decreasing demand. The following payoff table describes the decision situation.
...Managerial Economics and Operations Research
Tutorial Week 5
1. Review of Quiz 1
Decision Analysis:
2.
A manager is deciding whether or not to build a small facility. Demand is uncertain and can
be either at a high or low level. If the manager chooses a small facility and demand is low, the
payoff is $300. If the manager chooses a small facility and demand is high, the payoff is $100.
On the other hand, if the manager chooses a large facility and demand is low, the payoff is $200, but if demand is high, the payoff is $800.
a.
What would be the bestdecision based on the maximax criterion?
b.
What would be the bestdecision based on the maximin criterion?
c.
What would be the bestdecision based on the minimax regret?
3. The ABC Co. is considering a new consumer product. They believe there is a probability of
0.4 that the XYZ Co. will come out with a competitive product. If ABC adds an assembly line
for the product and XYZ does not follow with a competitive product, their expected profit is
$40,000; if they add an assembly line and XYZ does follow, they still expect a $10,000 profit.
If ABC adds a new plant addition and XYZ does not produce a competitive product, they
expect a profit of $600,000; if XYZ does compete for this market, ABC expects a loss of
$100,000.
a.
Determine the EMV of each decision.
b....
...Gametheory is defined as “the study of the ways in which strategic interactions among economic agents produce outcomeswith respect to thepreferences of those agents, where the outcomes in question might have been intended by none of the agents” by the Stanford Encyclopedia of Philosophy (Ross 1997). The disciplines most involved in gametheory “are mathematics, economics and the other social and behavioral sciences” (McCain 1997).Gametheory was created to confront the problem and provide a theory of economic and strategic behavior. In gametheory, "games" have always been a metaphor for more serious interactions in human society. But gametheory addresses the serious interactions using the metaphor of a game: in these serious interactions, as in games, the individual's choice is essentially a choice of a strategy, and the outcome of the interaction depends on the strategies chosen by each of the participants (McCain1997).
John von Neumann a great mathematician founded gametheory. The legend of John Von Neumann gives a good insight on who John Von Neumann was and his theory. John von Neumann was a child prodigy, born into a banking family in Budapest, Hungary, “when he was only six years old he could divide eightdigit numbers in his...
...DecisionTheory Models
The Six Steps in DecisionTheory
* Clearly define the problem at hand.
* List the possible alternatives.
* Identify the possible outcomes or states of nature.
* List the payoff or profit of each combination of alternatives and outcomes.
* Select one of the mathematical decisiontheory models.
* Apply the model and make your decision.
Case
Here we use the Thompson Lumber Company case as an example to illustrate these decisiontheory steps. John Thompson is the founder and president of Thompson Lumber Company, a profitable firm located in Portland, Oregon.
Step 1
The problem that John Thompson identifies is whether to expand his product line by manufacturing and marketing a new product, backyard storage sheds.
Step 2
* The second step is to list the alternative.
* Thompson’s second step is to generate alternatives that are available to him .In decisiontheory the alternative is a course of action or strategy that the decision maker can choose .According to him his alternatives are to construct:
1 • a large new plant to manufacture the storage sheds
2 • a small plant, or
3 • no plant at all
* So, the decision makers should try to make all possible alternatives ,on some occasion even the least important...
...MATH 4321 Spring 2013 Assignment Solution 0Sum Games 2 1. Reduce by dominance to 2x2 games and solve.
5 4 4 3 (a) 0 1 1 2 1 0 2 1 4 3 1 2
10 0 7 1 (b) 2 6 4 7 6 3 3 5
Solution: (a). Column 2 dominates column 1; then row 3 dominates row 4; then column 4 dominates column 3; then row 1 dominates row 2. The resulting submatrix consists of row 1 and 3 vs. columns 2 and 4. Solving this 2 by 2 game and moving back to the original game we find that value is 3/2, I’s optimal strategy is p (1 2, 0,1 2,0) and II’s optimal strategy is q (0,3 8, 0,5 8). (b). Column 2 dominates column 4; then (1/2)row 1+ (1/2)row 2 dominates row 3; then (1/2)col 1+(1/2)col 2 dominates col 3. The resulting 2 by 2 game is easily solved. Moving back to the original game we find that the value is 30/7, I’s optimal strategy is (2/7,5/7,0) and II’s optimal strategy is (3/7,4/7,0,0).
2. Reduce by dominance to a 3x2 matrix game and solve:
0 8 5 8 4 6 . 12 4 3
Solution: Note that 5/8xCol2 + 3/8xCol1 uniformly dominates Col3. Therefore, we can delete Col3 to get
0 8 * 8 4 * . Then, we use the graphical method in the following. 12 4 *
1/ 3 2 / 3 0 4 / 12 0 8 5 8 /12 8 4 6 0 12 4 3
Answer: The optimal strategy for I is (4/12, 8/12, 0) The optimal strategy for II is (1/3, 2/3, 0) Value = 16/3
3....
...Beauty Contest Experiment
The experiment executed in the seminar was very simple. Players had to choose a number between 0 and 100. The objective is to choose a number based on your guess of the mean guesses of the group and multiply it by 2/3. It is called the Beauty contest Experiment because it was based on a theory John Maynard Keynes proposed on the relationship of the stock market with beauty contests conducted in newspapers of his time. In this report I will examine the logic behind choosing the best response strategy in theory and compare it with the actual results of the experiment conducted. From the comparison I will provide justification for why the theory is different from reality by also comparing it to examples in real life.
To understand the underlying logic of the game’s strategy one must understand the Nash Equilibrium. Princeton University’s Website (an excellent source since John Nash the person who came up with the Equilibrium attended that university) defines Nash Equilibrium as “a solution concept of a game involving two or more players, in which each player is assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only his or her own strategy unilaterally. If each player has chosen a strategy and no player can benefit by changing his or her strategy while the other players keep theirs unchanged, then the current set of...
...Decision Making Under Risk
Risk – is defined as hazard or chance of loss even disaster. Thus, in decision making under risk, the decision maker is exposed to some chances of injury or loss. In such circumstances, the decision maker then must first assess the degree and the probability of such loss or failure.
Tools/Criterion of Analysis in Making Decision:
1. Expected Monetary Value (EMV or EV)
Using a decision table with conditional values (payoffs) that are monetary values, and probability assessments we can determine the expected monetary value (EMV) for all alternatives.
EMV is the sum of possible payoffs of the alternatives, each are weighted by the probability of the payoff occurring. Thus –
EMV (alternative i) = (payoff of first state of nature) x (probability of first state of nature) + (payoff of second state of nature) x (probability of second state of nature)
+…+ (payoff of last state of nature) x (probability of last state of nature)
The alternative with the maximum EMV is then chosen.
THIS THEN IS THE EXPECTED VALUE WITHOUT PERFECT INFORMATION.
2. Expected Value of Perfect Information (EVPI)
The expected value with perfect information is the expected or average return, in the long run, if we have perfect information before a decision has to be made.
Step 1: To calculate this, we will...
...DECISION
QUIZZES
1.
The value of perfect information is directly related to losses predicted with imperfect information.
A. True
B. False
A.
True
B.
False
2.
EVPI is the expected financial value of the regret for the optimal decision under risk.
A. True
B. False
A.
True
B.
False
3.
A decision tree branches out to include all of the possible decisions and all of the possible events we are capable of identifying.
A. True
B. False
A.
True
B.
False
4.
Because Payoffs and Probabilities are estimates, sensitivity analysis is useful.
A. True
B. False
A.
True
B.
False
5.
A decision tree requires five or more branches to be useful.
A. True
B. False
A.
True
B.
False
6.
A good decision process will offer the best chance of reaching a good decision.
A. True
B. False
A.
True
B.
False
7.
While all of these steps are important in reaching a good decision, which one of the following steps is often the most crucial in the decisionmaking process?
A.
Identifying the problem.
B.
Specifying objectives
C.
Developing alternatives
D.
Analyzing alternatives
E.
Selecting the best alternative
8.
Which one...
... 2012 
 Application Of GameTheory to Business: Preliminary Findings for Term paper
Saurabh Mandhanya 11p164Rajat Barve 11p157Shashank Gupta 11p166Deepak Bansal 11P133Padmini Narayan 11p152Lizanne Marie Raphael 11P025 
[ The Kargil War: Analysis and Learning Through GameTheory ] 

Introduction
India and Pakistan have been involved in conflict over Kashmir since Independence. It has led to numerous wars and attacks. The relations and wars over Kashmir can be studied using GameTheory. Tit for Tat policy has been practiced by both nations. The pay of for wars for both countries has been changing depending on the context. This context has been based on many parameters –
1. Ally countries – US and China are widely regarded as Pakistan allies. China has been against India due to border issues. USSR has been traditionally supporting India until recently. The situation keeps on changing with changing stance of allies.
2. International support  International communities like UN tries to solve the conflict through negotiations.
3. Military strength – It keeps on changing depending upon development and purchase of weapons on both sides.
4. Resources including financial and others – India has always been in a relatively better position due to more available resources.
5. Leadership of both countries especially of Pakistan (Army Rule) – Army Rulers might...
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