An investor is considering 4 different opportunities, A, B, C, or D. The output for each opportunity will depend on the economic conditions, represented in the payoff table below.
Economic Condition
unfortunate AverageGoodExcellent
Investment (S1) (S2) (S3) (S4)
A 5075 20 30
B 8015 40 50
C -100 300 -50 10
D 2525 25 25
a) What finis would be made to a lower place maximax?
Answer
This is where the decision maker takes a gamble and looks at the beaver of the go around, thereof the decision
is to invest in opportunity C = 300
STATES OF reputation|
Decisions| Maximum in a Row|
A| 75|
B| 80|
C| 300 the trounce of the best|
D| 25|
b) What decision would be made under maximin?
Answer
This is where the decision maker has a pessimistic outlook hence looks at the worst outcome and select
the best, so the best of the worst is to invest in opportunity D = 25
STATES OF nature|
Decisions| Minimum in a Row|
A| 20|
B| 15 |
C| -100 |
D| 25 the best of the worst|
c) What decision would be made under minimax tribulation?
Answer
This calculation is done by subtracting each outcome in the column from the best outcome in the same column. therefore
* Calculation of Regrets
* * Investment| * Demand (States of Nature)| * |
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