build-rite construction has received favorable publicity from guest appearances on a public tv home improvement program. public tv programming decisions seem to be unpredictable, so build-rite cannot estimate the probability of continued benefits from its relationship with the show. demand for home improvements next year may be either low or high. but build-rite must decide now whether to hire more employees, do nothing, or develop subcontracts with other home improvement contractors. build-rite has developed the following payoff table: Payoffs Demand For Home Improvements
Alternative Low Moderate High
Hire ($250,000) $100,000 $625,000
Subcontract $100,000 $150,000 $415,000
Do nothing $50,000 $80,000 $300,000
What is the decision based on each of the following criteria. Show work in making the decision for each criterion:
a) Maximax
b) Maximin
c) Criterion of realism with coefficient of realism = 0.7
d) Equally likely
e) Minimax regret
Use the tables given below.
a) Optimistic or Maximax Criterion
Payoffs Demand For Home Improvements
Alternative Low Moderate High
Hire ($250,000) $100,000 $625,000
Subcontract $100,000 $150,000 $415,000
Do nothing $50,000 $80,000 $300,000
Decision:
b) Pessimistic or Maximin Criterion
Payoffs Demand For Home Improvements
Alternative Low Moderate High
Hire ($250,000) $100,000 $625,000
Subcontract $100,000 $150,000 $415,000
Do nothing $50,000 $80,000 $300,000
Decision:
c) Criterion of realism with coefficient of realism = 0.7
Payoffs Demand For Home Improvements
Alternative Low Moderate High
Hire ($250,000) $100,000 $625,000
Subcontract $100,000 $150,000 $415,000
Do nothing $50,000 $80,000 $300,000
Decision:
d) Equally likely or Principle of Insufficient Reason Criterion
Payoffs Demand For Home Improvements
Alternative Low Moderate High
Hire ($250,000) $100,000 $625,000
Subcontract $100,000 $150,000 $415,000
Do nothing $50,000 $80,000 $300,000
Decision:
e) Minimax Regret Approach
Regrets Demand For Home Improvements
Alternative Low Moderate High
Hire
Subcontract
Do nothing
Decision:
