A company must choose between three alternatives. The minimum payoffs for each are -10,000 USD, 0 USD, and -5,000 USD. Using the Maximin criterion, which alternative should be chosen?
Explanation
This is a direct application of the Maximin rule. The process is to identify the worst-case scenario within each alternative and then choose the best (i.e., the maximum) of those worst-case scenarios.
Other questions
Which of the following terms refers to an occurrence or a situation over which the decision maker has little or no control?
What does a square symbol (☐) represent in a decision tree diagram?
Which decision-making criterion finds the alternative that maximizes the maximum outcome and is considered an 'optimistic' approach?
Which decision-making criterion finds the alternative with the least possible loss and is considered a 'pessimistic' approach?
A company faces three alternatives and two states of nature. Alternative 1 has payoffs of 200,000 USD and -180,000 USD. Alternative 2 has payoffs of 100,000 USD and -20,000 USD. Alternative 3 has payoffs of 0 USD and 0 USD. Using the Maximax criterion, what is the best decision?
A company faces three alternatives and two states of nature. Alternative 1 has payoffs of 200,000 USD and -180,000 USD. Alternative 2 has payoffs of 100,000 USD and -20,000 USD. Alternative 3 has payoffs of 0 USD and 0 USD. Using the Maximin criterion, what is the best decision?
A company faces three alternatives and two states of nature. Alternative 1 has payoffs of 200,000 USD and -180,000 USD. Alternative 2 has payoffs of 100,000 USD and -20,000 USD. Alternative 3 has payoffs of 0 USD and 0 USD. Using the Equally Likely criterion, what is the best decision?
The decision-making environment where several states of nature may occur, each with an assumed probability, is known as decision making under what?
A company is considering constructing a small plant. If the market is favorable, the profit is 100,000 USD; if unfavorable, the loss is 20,000 USD. The probability of a favorable market is 0.6, and an unfavorable market is 0.4. What is the Expected Monetary Value (EMV) for this alternative?
What is the term for the difference between the payoff under perfect information and the payoff under risk?
A decision maker faces two states of nature: a favorable market with a probability of 0.6 and an unfavorable market with a probability of 0.4. The best outcome for a favorable market is a profit of 200,000 USD. The best outcome for an unfavorable market is a profit of 0 USD. What is the Expected Value with Perfect Information (EVwPI)?
If the Expected Value with Perfect Information (EVwPI) is 120,000 USD and the maximum Expected Monetary Value (EMV) of the available alternatives is 52,000 USD, what is the Expected Value of Perfect Information (EVPI)?
In decision tree analysis, what is the process for solving the problem to find the best course of action?
When is a decision tree approach more appropriate than a decision table?
In a decision tree, a state-of-nature node has two branches. The first branch has a payoff of 190,000 USD with a probability of 0.78. The second branch has a payoff of -190,000 USD with a probability of 0.22. What is the Expected Monetary Value (EMV) for this node?
In a sequential decision tree, the first decision is whether to conduct a market survey for 10,000 USD. The EMV of the 'Conduct survey' branch is calculated to be 49,200 USD. The EMV of the 'Do not conduct survey' branch is calculated to be 52,000 USD. What is the optimal decision?
Analytic decision making is based on logic and follows six steps. Which of the following is NOT one of those steps?
What term is used to describe the huge amount of economic, production, and consumer data now being collected in digital form, which often cannot be efficiently processed by traditional data techniques?
Stella Yan Hua is considering opening a dress shop. A small shop would yield a profit of 75,000 USD in a good market, 25,000 USD in an average market, and a loss of 40,000 USD in a bad market. The probabilities are 0.20 for good, 0.50 for average, and 0.30 for bad. What is the EMV for opening a small shop?
Stella Yan Hua is considering two shop sizes. The EMV for a small shop is 15,500 USD and the EMV for a medium-sized shop is 19,500 USD. Based on the EMV criterion, what should she do?
T.S. Amer’s Ski Shop faces four states of nature for daily traffic with probabilities of 0.20, 0.25, 0.30, and 0.25. The best possible daily net profits for each of these four states of nature are 50 USD, 92 USD, 40 USD, and 64 USD, respectively. What is the Expected Value with Perfect Information (EVwPI) for T.S. Amer?
For T.S. Amer's Ski Shop, the Expected Value with Perfect Information (EVwPI) is 61 USD, and the maximum Expected Monetary Value (EMV) from his merchandising plans is 55 USD. What is the Expected Value of Perfect Information (EVPI)?
What is the primary purpose of a decision table?
A decision table is being constructed. The rows typically list the decision alternatives, and the columns list the states of nature. What information is contained in the body of the table?
Andrew Thomas is a sandwich vendor. With a big crowd, his profits from a large, average, and small stock are 22,000 USD, 14,000 USD, and 9,000 USD, respectively. With an average crowd, profits are 12,000 USD, 10,000 USD, and 8,000 USD. With a small crowd, profits are -2,000 USD, 6,000 USD, and 4,000 USD. What is the Maximax decision?
Andrew Thomas is a sandwich vendor. With a big crowd, his profits from a large, average, and small stock are 22,000 USD, 14,000 USD, and 9,000 USD, respectively. With an average crowd, profits are 12,000 USD, 10,000 USD, and 8,000 USD. With a small crowd, profits are -2,000 USD, 6,000 USD, and 4,000 USD. What is the Maximin decision?
Andrew Thomas, a sandwich vendor, faces probabilities of 0.3 for a big crowd, 0.5 for an average crowd, and 0.2 for a small crowd. The profits for stocking an average amount are 14,000 USD (big), 10,000 USD (average), and 6,000 USD (small). What is the EMV for stocking an average amount?
In the poker hand example, Paul Phillips determines the overall EMV of going 'all in' is 71,570 USD. This value is a combination of the EMV if his opponent folds and the EMV if his opponent calls. This indicates that:
Why must the states of nature in a decision problem under risk be 'mutually exclusive and collectively exhaustive'?
An EVPI of 68,000 USD for Getz Products' decision means that:
What does it mean to 'prune' a branch on a decision tree?
A manager is deciding between two alternatives. Alternative A has an EMV of 50,000 USD. Alternative B has an EMV of 55,000 USD. The EVPI for the problem is 10,000 USD. What should the manager do?
Ian Langella is considering the size of a new gas station. A very large station has a payoff of 300,000 USD in a good market, 25,000 USD in a fair market, and a loss of 160,000 USD in a poor market. Assuming the 'equally likely' criterion, what is the average return for the very large station?
For Ian Langella's gas station decision, the average returns for small, medium, large, and very large stations under the equally likely criterion are 20,000 USD, 30,000 USD, 30,000 USD, and 55,000 USD, respectively. Which is the best decision?
A decision maker is facing a problem with two states of nature, S1 and S2, with probabilities of 0.30 and 0.70. Alternative A1 has payoffs of 15,000 USD for S1 and 20,000 USD for S2. What is the EMV for A1?
A company is faced with a decision. If they conduct a market survey, there is a 0.45 chance of a favorable result. If the result is favorable, the EMV of the subsequent best decision is 106,400 USD. If the result is negative (0.55 chance), the EMV of the subsequent best decision is 2,400 USD. What is the EMV of the initial decision to conduct the survey?
In the poker hand example, there is an 80 percent probability T.J. will fold, resulting in a 99,000 USD win. There is a 20 percent probability he will call. If he calls, there is a 45 percent chance of winning 853,000 USD (pot size) and a 55 percent chance of losing 422,000 USD (the bet). What is the EMV if T.J. calls?
What does a conditional value in a decision table represent?
A conditional value table shows that for a good market, profits are 50,000 USD, for a fair market 20,000 USD, and for a poor market -10,000 USD. Using the Maximin criterion, what is the value that would be considered for this alternative?
What is the key advantage of a decision tree when a problem involves decisions that are dependent on the outcomes of previous choices?
An alternative has three possible outcomes with payoffs of 10,000 USD, 20,000 USD, and -5,000 USD. The probabilities are 0.2, 0.5, and 0.3, respectively. What is the EMV of this alternative?
The first step in analyzing a problem with a decision tree is to:
The Expected Value with Perfect Information (EVwPI) for a decision is 75,000 USD, and the EVPI is 15,000 USD. What is the maximum EMV for the decision under risk?
A decision maker is using the equally likely approach. Alternative X has payoffs of 100, 200, and -90. Alternative Y has payoffs of 50, 60, and 70. Which alternative should be chosen?
If a decision maker faces a situation with complete uncertainty and is 'pessimistic', which decision criterion should they use?
A circle (◯) symbol in a decision tree represents:
A company must choose between three alternatives. The maximum payoffs for each are 500,000 USD, 600,000 USD, and 550,000 USD. Using the Maximax criterion, which alternative should be chosen?
In a decision tree, if the EMV of building a large plant is 48,000 USD and the EMV of building a small plant is 52,000 USD, what action should be taken at that decision node?
Which of the following decision-making tools is most suitable for problems ranging from new-product analysis to capacity planning and supply-chain disaster planning?