Suppose that a decision is faced with three decision alternatives and four states of nature. The following profit payoff table is constructed: Alternatives State of Nature S1S2S3S4 Α11812158 Α215141011 13161915 Α3 Assuming that the decision maker has no knowledge about the probabilities of occurrence of the four states of nature, find the decisions to be recommended under each of the following criteria: i.Maximin criterion ii.Maximax criterion iii.Minimax Reject criterion

The matrix looks like: S1 S2 S3 S4 Α1 18 12 15 8 Α2 15 14 10…

Answered: Suppose that a decision is faced with…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that a decision is faced with three decision alternatives and four states of nature. The following profit payoff table is constructed:

Alternatives		State of Nature

	S₁	S₂	S₃	S₄

Α₁	18	12	15	8
Α₂	15	14	10	11
13	16	19	15
Α₃

Assuming that the decision maker has no knowledge about the probabilities of occurrence of the four states of nature, find the decisions to be recommended under each of the following criteria:

i.	Maximin criterion
ii.	Maximax criterion
iii.	Minimax Reject criterion

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