The owner of the Columbia Construction Company must decide between building a housing development, constructing a shopping center, and leasing all the company’s equipment to another company. The profit that will result from each alternative will be determined by whether material costs remain stable or increase. The profit from each alternative, given the two possibilities for material costs, is shown in the following payoff table: Material Costs Decision Stable Increase Houses $70,000         $30,000 Shopping center 105,000      20,000 Leasing 40,000          40,000 Determine the best decision, using the following decision criteria. a. Maximax b. Maximin c. Minimax regret d. Hurwicz e. Equal likelihood

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Decision Theory in Operations Management

Decision theory, also known as the theory of choice, is a branch of statistics that deals with making decisions based on the probability of the occurrence of an event. The chief purpose of decision theory is to identify the best course of action for the company with maximum payoffs.