5. Determine the course of action that has the highest expected payoff for this decision tree.$1.0*$1.3Do nothingMedium demand (.5)Large demand (.1)Small demand (.4)Expand$1.3Do nothingExpand$1.5$1.6Build$1.8Do nothingOther use #1$0.7$1.5Small demand (.4)Medium demand (.5)Other use #2$1.0Expand$1.6Large demand (.1)Do nothingSubcontract$1.6$1.5Build$1.7($0.9)Do nothingOther use #1Small demand (.4)Medium demand (.5),$1.4Other use #2$1.0$1.0Large demand (.1)Do nothingOther use #1$1.1Other use #2$0.9* Net present value in millions$2.4SubcontractBuild 1.The following solved problems refer to this payoff table:NewNoBridgeBuiltNewBridgeAlternative capacityA114for new store21046where A = small, B = medium, and C = large.Assume the payoffs represent profits. Determine the alternative that would be chosen under each ofthese decision criteria:a. Maximin.b. Маximax.c. Laplace.2.Using the information in the payoff table, develop a table of regrets, and thena. Determine the alternative that would be chosen under minimax regret.b. Determine the expected value of perfect information using the regret table, assuming that theprobability of a new bridge being built is .60.3.Using the probabilities of .60 for a new bridge and .40 for no new bridge,a. Compute the expected value of each alternative in the payoff table, and identify the alternativethat would be selected under the expected-value approach.b. Construct a decision tree for the problem showing expected values.Compute the EVPI using the information from the previous problem.4.

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Description: 5. Determine the course of action that has the highest expected payoff for this decision tree.$1.0*$1.3Do nothingMedium demand (.5)Large demand (.1)Small demand (.4)Expand$1.3Do nothingExpand$1.5$1.6Build$1.8Do nothingOther use #1$0.7$1.5Small deman

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5. Determine the course of action that has the highest expected payoff for this decision tree.

A First Course in Probability (10th Edition)

10th Edition

ISBN:9780134753119

Author:Sheldon Ross

Publisher:Sheldon Ross

Chapter1: Combinatorial Analysis

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Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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Concept explainers

Contingency Table

A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.

Binomial Distribution

Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.

Topic Video

Question

5. Determine the course of action that has the highest expected payoff for this decision tree.
$1.0*
$1.3
Do nothing
Medium demand (.5)
Large demand (.1)
Small demand (.4)
Expand
$1.3
Do nothing
Expand
$1.5
$1.6
Build
$1.8
Do nothing
Other use #1
$0.7
$1.5
Small demand (.4)
Medium demand (.5)
Other use #2
$1.0
Expand
$1.6
Large demand (.1)
Do nothing
Subcontract
$1.6
$1.5
Build
$1.7
($0.9)
Do nothing
Other use #1
Small demand (.4)
Medium demand (.5),
$1.4
Other use #2
$1.0
$1.0
Large demand (.1)
Do nothing
Other use #1
$1.1
Other use #2
$0.9
* Net present value in millions
$2.4
Subcontract
Build

1.
The following solved problems refer to this payoff table:
New
No
Bridge
Built
New
Bridge
Alternative capacity
A
1
14
for new store
2
10
4
6
where A = small, B = medium, and C = large.
Assume the payoffs represent profits. Determine the alternative that would be chosen under each of
these decision criteria:
a. Maximin.
b. Маximax.
c. Laplace.
2.
Using the information in the payoff table, develop a table of regrets, and then
a. Determine the alternative that would be chosen under minimax regret.
b. Determine the expected value of perfect information using the regret table, assuming that the
probability of a new bridge being built is .60.
3.
Using the probabilities of .60 for a new bridge and .40 for no new bridge,
a. Compute the expected value of each alternative in the payoff table, and identify the alternative
that would be selected under the expected-value approach.
b. Construct a decision tree for the problem showing expected values.
Compute the EVPI using the information from the previous problem.
4.

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