1.Lakewood Fashions must decide how many lots of assorted ski wear to order for its three stores.

Information on pricing, sales, and inventory costs has led to the following payoff table, in thousands. Demand Medium 15 25 35

Order Size 1 lot 2 lots 3 lots a. b. c.

Low 12 9 6

High 15 35 60

What decision should be made by the optimist? What decision should be made by the conservative? What decision should be made using minimax regret?

2.The table shows both prospective profits and losses for a company, depending on what decision is made and what state of nature occurs. Use the information to determine what the company should do. State of Nature s2 80 30 10 20

Decision d1 d2 d3 d4 a. b. c.

s1 30 100 80 20

s3 30 40 120 20

if an optimistic strategy is used. if a conservative strategy is used. if minimax regret is the strategy.

A payoff table is given as State of Nature s2 750 250 500

Decision d1 d2 d3 a. b. c. d. e.

s1 250 300 500

s3 500 1200 600

What choice should be made by the optimistic decision maker? What choice should be made by the conservative decision maker? What decision should be made under minimax regret? If the probabilities of d1, d2, and d3 are .2, .5, and .3, respectively, then what choice should be made under expected value? What is the EVPI?

ANS: 1. a. 3 lots b. 1 lot c. 3 lots Regret table: Order Size 1 lot 2 lots 3 lots PTS: 1 2. ANS: a. b. c. d3 d1 d4 Demand Medium 20 10 0 Maximum Regret 45 25 6

Low 0 3 6

High 45 25 0

TOP: Decision making without probabilities

Regret table: State of Nature s2 0 50 90 60 Maximum Regret 150 160 180 100

Decision d1 d2 d3 d4

s1 70 0 180 80

s3 150 160 0 100