1.

Suppose that a manager faced with four decision alternatives and three states of
nature develops the following profit payoff table:
State of nature
Decision
S1
S2
S3
Alternatives
A
12
18
15
B
17
10
14
C
22
16
10
D
14
14
14
1. If the decision maker knows nothing about the probabilities of the three
states of nature, what is the recommended decision using the following
criteria:
a. Optimistic
b. Pessimistic
c. Equally likely
d. Hurwicz with 0.6 coefficient of realism
e. Minimax regret
2. Assume that the payoff table provides cost rather than profit payoffs. What is
the recommended decision for all 5 criteria in number 1 above?
3. Suppose that the manager has assigned probabilities of 0.2 to the occurrence
of state 1, 0.5 to occurrence of state 2, and 0.3 to the occurrence of state 3.
a. What alternative would be chosen using maximum expected value if
the payoffs are profits?
b. Calculate the expected value of perfect information
c. What alternative would be chosen using the expected opportunity loss
if the payoffs are costs?
2. You are asked for your opinion as to why an executives dissatisfied secretary quit
her job. Unable to get any direct information about the secretary, you took the
following data from a large-scale corporate morale and motivation study: Among
all dissatisfied secretaries, 20 percent are dissatisfied mainly because they dislike
their work, 50 percent because they feel they are underpaid, and 30 percent
because they dislike their boss. Furthermore, the corresponding probabilities that
they will quit are 0.60, 0.40, and 0.90. Based on these figures, what are the
chances that the secretary quit because of the work, because of the pay, or
because of the boss?