(Assignment 1 Answer)

Example (4)
If you face with the following problem under risk
Alternatives Introduce Growth Decline
A1 190,000 150,000 30,000
A2 280,000 230,000 40,000)
A3 150,000 160,000 (20,000)
Probabilities 40% 25% 35%

Required:
a) Compute the expected value for every alternative.
b) Choose the appropriate alternative.

Solution
a) Expected value (EV)
EV (A1) = (190,000*40%) + (150,000*25%) + (30,000*35%)
= 76,000+37,500+10,500 = 124,000
EV (A2) = (280,000*40%) + (230,000*25%) + (40,000*35%)
= 112,000 + 57,500 +14,000 = 183,500
EV (A3) = (150,000*40%) + (40,000*25%) + (-20,000*35%)
= 60,000 + 30,000 -17,000 = 7,000
b) The appropriate alternative is (A2) where the EV is $183,500
Example (5)
The following data related to three alternatives
Alternatives N1 N2 Ne
A1 8 4 -5
A2 6 9 -4
A3 5 7 -2

Required:
a) Choose the proper alternative by using Maxi-Maxi standard
b) Choose the proper alternative by using Maxi-Mini standard
c) Choose the proper alternative by using Laplace standard
d) Choose the proper alternative by using Minimize regret standard
Solution
a) Maxi-Maxi standard
Alternatives Maximum outcomes Maxi-Maxi
A1 8
A2 9 9
A3 7
The proper alternative is A2 where the maximum outcome is (9)

b) Maxi-Mini standard
Alternatives Minimum outcomes Maxi-Mini
A1 -5
A2 -4
A3 -2 -2

The proper alternative is A3 where the maximum outcome is (-2)

 c) Laplace standard
EV (A1) = 1/3(8+4-5) = 7/3
EV (A2) = 1/3(6+9-4) = 11/3
EV (A3) = 1/3(5+7-2) = 10/3
The proper alternative is A2 where the EV is (11/3)

D) Minimize regret standard

Alternatives N1 N2 N3 SUM P.Alt
A1 0 5 3 8
A2 2 0 2 4 4
A3 3 2 0 5
The proper alternative is A2 where the max outcome is 4