Realism (Hurwicz) Equally likely

Favourble Unfavourable Maximax Maxmin a= 0.8 a=0.5

Large Plant 200000 -180000 200000 -180000 124000 10000
Small Plant 100000 -20000 100000 -20000 76000 40000
No plant 0 0 0 0 0 0

Maximax - (Optimistic)- Maximize maximum payoff alpha = 1

Maxmin - (Pessimistic)- Maximum of minimum payoff alpha =0

Realism (Hurwicz) - We introduce alpha (a) - 0 <= a<=1

<= 1 Weighted average = a* Max + (1-a) * Min

Minmax regret - Minimising the maximum opportunity loss

Maximum value 200000 0

Minimax
Favourble Unfavourable Regret
Large Plant 0 180000 180000
Small Plant 100000 20000 100000
No plant 200000 0 200000
ax + (1-a) * Min
Expected Mean Value (EMV)

Favourble Unfavourable EMV (Expected Mean Value)

Large Plant 200000 -180000 -28000
Small Plant 100000 -20000 28000
No plant 0 0 0
Max
Probability 0.4 0.6

Marketing firm 65000

Expected value of perfect Information (EVPI) = Expected return with perfect information - Expected return without perfect inf

Expected return with perfect information= Maximum value with probability

Expected opportunity lost (EOL)

Favourble Unfavourable EOL

Large Plant 0 180000 90000
Small Plant 100000 20000 60000
No plant 200000 0 100000

Probability 0.5 0.5

eturn without perfect information -28000
Decision Node

10000

Event Node
Large Plant
40000
Small Plants

0
No Plants
 200000
Favourable (0.5)

Unfavourable (0.5) -180000

Favourable (0.5) 100000

Unfavourable (0.5) -20000

Favourable (0.5) 0

Unfavourable (0.5) 0
 Payoff table
Operational Non-Operational
City A 1000000 -75000
City B 200000 -25000
No 0 0

a) For maximizing the profit we should use Maximax option. Option to be selected is "City A"
b) For maximising the minimum payoff we need to consider Maxmin option. Option to be selected is "No plant"

a b
Operational Non-Operational Maximax Maxmin
City A 1000000 -75000 1000000 -75000
City B 200000 -25000 200000 -25000
No 0 0 0 0
Equallly likely

c) Minimising the maximum opportunity lost- We need to create the regret table and find out Minimax regret. Option to be se

Operational Non-Operational
City A 1000000 -75000
City B 200000 -25000
No 0 0
Max of opportunity 1000000 0

Regret table c
Favorable Unfavorable Minimax regret
City A 0 75000 75000
City B 800000 25000 800000
No 1000000 0 1000000
is "No plant"

imax regret. Option to be selected is "City A"

Hourly Fee 8
Maintenance fee 1 This will be incurred even if it is not utilised
Net earning if machines are utilised 7
Demand
No. of machine 22 23 24 25 26
Probability based on market survey 0.12 0.16 0.22 0.27 0.18

22 22 22 22 22 22
Machine supply

23 22 23 23 23 23
24 22 23 24 24 24
alternative

25 22 23 24 25 25
26 22 23 24 25 26
27 22 23 24 25 26

Demand
No. of machine 22 23 24 25 26
Probability based on market survey 0.12 0.16 0.22 0.27 0.18

22 154 154 154 154 154

Machine supply

23 153 161 161 161 161

24 152 160 168 168 168
alternative

25 151 159 167 175 175

26 150 158 166 174 182
27 149 157 165 173 181

a Expected profit without perfect information

168.64
b Expected Profit with perfect information
170.66
c Expected Value of Perfect information
2.02 This is the difference between the profit with perfect information and n
 27
0.05

22
23
24
25
26
27

27 Expected
0.05 Profit

154 154
161 160.04
168 164.8
175 167.8
182 168.64
189 168.04

with perfect information and no information

 Interest Rate
Decline Stable Increase Expected value
Fixed Deposit 1.2 1.2 1.2 1.2
Investing in share 1.7 1.4 1 1.51
Small scale business 3.2 1.5 0.6 2.26

Probability 0.5 0.4 0.1

Regret table
Decline Stable Increase Max Expected Opportunity Loss
Max value 3.2 1.5 1.2 3.2 2.32
Fixed Deposit 2 0.3 0 2 1.12
Investing in share 1.5 0.1 0.2 1.5 0.81
Small scale business 0 0 0.6 0.6 0.06

Probability 0.5 0.4 0.1

Expected return with perfect information
Expected value with perfect information