Given the following payoff table with the profits ($m), a firm might expect alternative investments (A, B, C) under different levels of interest rate. (attached) Assume now that the payoffs are costs answer the following: (a) Using an optimistic approach (maximax), which option would you choose? (b) Using a pessimistic approach (maximin), which option would you choose? (c) If you are a LaPlace decision maker, which option would you choose?
Given the following payoff table with the profits ($m), a firm might expect alternative investments (A, B, C) under different levels of interest rate. (attached)
Assume now that the payoffs are costs answer the following:
(a) Using an optimistic approach (maximax), which option would you choose?
(b) Using a pessimistic approach (maximin), which option would you choose?
(c) If you are a LaPlace decision maker, which option would you choose?
(d) If you are a Hurwicz decision maker, which option would you choose with α = 0.2?
(e) Using a minimax regret approach, which option would you choose?
(f) Using the same probabilities of 0.35, 0.3, and 0.35 for possible interest levels 1, 2, 3 respectively, which decision alternative will minimise the expected cost? What is the expected annual cost associated with that recommendation?
g) What is the most the firm should be willing to pay to obtain further (perfect) information (EVPI)?
h) Use the alternative method to verify EVPI
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