University of Tunis

Tunis Business School Fall 2021

Decision & Game Theory

Tutorial 1

Question 1

A competitor uses illegitimate and even immoral attitudes to manipulate your market
share. You have a number of options to react. Which among these would be ultimate
objective(s)?

1. Put him in prison

2. Discontinue all his illegitimate activities

3. Destroy him

4. Discontinue all the activities

Question 2

You are given three offers for summer training:

• At a cashier desk with some motivating salary five minutes away from your house.

• At an exotic place in a forest next to the sea for an environmental mission.

The salary is moderate. However, you will work with a group of funny friends.

• A training in a business company with very interesting impacts on your academic career.
The salary is fairly good but you need to travel 150 kilometers away from your house.

1. Provide a list of selected criteria for this problem.

2. Provide legitimate objective(s) of your decision.
3. Provide scales for measuring levels of each criterion for the various offers.
4. Build a hierarchy for the different criteria used. Could you determine the optimal choice?
University of Tunis
Tunis Business School Fall 2021
5. Could you determine the optimal choice?

Question 3
Silicon Dynamics has developed a new computer chip that will enable it to begin producing
and marketing a personal computer if it so desires. Alternatively, it can sell the rights to the
computer chip for $15 million. If the company chooses to build computers, the profitability of
the venture depends upon the company’s ability to market the computer during the first year.
It has sufficient access to retail outlets that it can guarantee sales of 10,000 computers. On
the other hand, if this computer catches on, the company can sell 100,000 computers. For
analysis purposes, these two levels of sales are taken to be the two possible outcomes of
marketing the computer, but it is unclear what their prior probabilities are. If the decision is to
go ahead with producing and marketing the computer, the company will produce as many
chips as needed. The cost of setting up the assembly line is $6 million. The difference
between the selling price and the variable cost of each computer is $600.

1. Develop a decision analysis formulation of this problem by identifying the decision

alternatives, the states of nature, and the payoff table.

2. Develop a graph that plots the expected payoff for each of the decision alternatives versus
the prior probability of selling 10,000 computers.

Question 4

A dapper young decision maker has just purchased a new suit. On the way out the door, the
decision maker considers taking an umbrella. With the umbrella on hand, the suit will be
protected in the event of rain. Without the umbrella, the suit will be ruined if it rains. However,
if it does not rain, carrying the umbrella is an unnecessary inconvenience.
1. Create a decision tree for this situation.
2. Before deciding, the decision maker considers listening to the weather forecast on the
radio.
Update the decision tree.

Question 5

At the start of each week, a vendor should decide on the quantity to order of a perishable
product. The weekly demand of this product takes one of the following levels: 15, 16, 17, or
18.
Each unit is purchased at 10TD and sold at 12TD. At the end of the week, the remaining
quantity is salvaged at 2TD per unit. The vendor incurs a cost of 4 TD for each unmet unit.
1. Construct the payoff table
2. In each of the following cases, derive the optimal decision:
a. Optimistic decision-maker.
University of Tunis
Tunis Business School Fall 2021
b. Pessimistic decision-maker.
c. Rational decision-maker.
d. Moderate decision-maker with a Hurwicz optimism index of 0.4.

Question 6

In order to push students to select majors according to their own skills, TBS organized 5
exams that are to be taken at the same time on business analytics (BA), information
technology (IT), finance (FIN), marketing (MKG), and accounting (ACC). Hafedh is
undecided which exam to take. His concern is to warrant the highest possible grade.
However, his performance depends on his conditions during the exam time and the
complexity of the exam. He made the following judgment of his expected grade.

State of nature Good day/easy Bad day/easy Good Bad day/tough

exam exam day/tough exam
Area exam

BA 80 60 70 35

IT 88 55 75 0

FIN 90 50 60 30

MKG 95 70 70 55

ACC 100 60 40 20

1. What should he take if he is extremely optimistic?

2. How if he is extremely pessimistic?
3. TBS would assign a major only for students who succeed to get a minimum
grade of 60. Would it be appropriate to opt for Laplace criterion? What would be a
suitable criterion to use? In that case, which exam Hafedh is ought to take?