Optimistic Decision Maker

Topics: Decision theory, Decision making, Risk Pages: 2 (325 words) Published: February 1, 2013
Summary
Jones,
I belive that in these times of economic struggles many of us have have been placed in making decisions under risky conditions. For example, as a contractor my husband has been laid off twice in the past three years, however we decided to buy a house. There were many things that could have happened that would have ended our dream, but in the end it all worked out and it was worth the risk.

3-17 (use QM)
( a) What type of decision is Ken facing?
Ken is facing a decision under uncertainty.
( b) What decision criterion should he use?
Since Ken is an optimistic decision maker, the maximax decision making criterion should be used to chose his equipment. ( c) What alternative is best?
Sub 100, which is listed in the first row of the table has a profit of 300,000 which is the highest increase in profit listed within the table. Therefore, Ken’s decision should be to choose the sub 100 to maximize profit. 3-19 (use Excel)

( a) What decision model should be used?
Ken should use the maximize EMV model to make this decision. ( b) What is the optimal decision? The optimal decision is Sub 100, which has the highest Expected Monetary Value of 150,000. ( c) Ken believes that the $ 300,000 figure for the Sub 100 with a favorable market is too high. How much lower would this figure have to be for Ken to change his decision made in part ( b)? The figure would have to be $7,143 lower for ken to change his decision. Solve for x:

.7x – 200,000(.3) = 145,000
.7x – 60,000 = 145,000
.7x = 205,000
205,000 / .7 = 292,857

$292,857
- 3-24
B. Today’s electronics minimax regret decision is the medium sized facility. - 3-26
8 cases
3-36
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- 3-47
Yes John will change his decision. He would choose to build large shop if the
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