Chapter 1.S, Problem 19P

In Problem S1-18, assume the Weight Club is able to estimate probabilities of occurrence for each possible future demand state, as follows:

Determine the best decision using expected value.

The Weight Club (see Case Problem 1.3) is considering adding a new service facility among several possible alternatives including a child care center, a swimming pool, new locker rooms and showers, a health-oriented food court, and a spa. The success of each alternative depends on their demand (i.e., new members who would join because of the new facility), which is uncertain. The following payoff table summarizes the returns (based on costs and increased enrollments) for each alternative service facility given three future levels of demand.

Determine the best decision for the club using the following criteria.

1. a. Maximax
2. b. Minimax
3. c. Hurwicz (α = .45)
4. d. Equal likelihood