Decision_Science_Assignment_Sep_2022

Q1. Avantika Mattoo working as an analyst in reputed pharmaceutical company

wants to invest her money in stocks. Her friends having expertise in stock
market investments, suggested her to invest money into ‘Reliance’ and ‘Maruti’
shares. Avantika’s economist on Avantika’s investments. The figures of return
on investment as per four different scenarios presented in the table below.

Payoff Scenario Scenario Scenario Scenario

(profit within one month on 1 2 3 4
one unit of share in INR)

Reliance Industry ltd. 55 43 29 15

Maruti 26 38 43 51

1) Set up the opportunity loss table.

2) Draw the decision tree (Note: You may use any software for making tree
diagram, but snapshot of handwritten tree will be unacceptable)

3) According to Niharika’s latest research, she has assigned the following

probabilities to the four scenarios (states of nature), determine the EMV
decision; P(s1) = 0.4 P(s2) = 0.1 P(s3) = 0.3 P(s4) = 0.2.

A1.

The difference between the maximum conceivable revenue for a state of nature and the
actual revenue realized for the specific action chosen is defined as an opportunity loss.
Opportunity cost represent the potential benefit that one misses out on when choosing an
alternative over another. Opportunity losses are computed for each possible condition of
nature separately and is inextricably linked with notion that every decision requires a
trade-off. Therefore, for any state of nature, compute opportunity loss for every option
available and determine the differential amongst the maximum payoff and payout for each
set up of action for that state of nature. The conditional opportunity loss is also referred
to as the opportunity loss for every plan of action. The expected monetary value (EMV)
for every plan of events can be calculated using the rewards and prospects of various
natural occurrences.
 Decision_Science_Assignment_Sep_2022

Source: https://www.investopedia.com/terms/o/opportunitycost.asp

A decision tree is a structured diagram like a graph that illustrates any potential outcome
for a given input using a branching mechanism. Decision trees can be hand-drawn or
generated using a graphics application or specialist software. Whenever a panel wants to
evaluate and make a judgement from various alternatives, decision trees can help
concentrate onh the debate. It could be used to portray conclusions and decision making
graphically and unambiguously. It employs a decision-tree-like model, asit suggests in the
name itself. A decision tree diagram is a form of flowchart that lays down the following
routes of events available to simplify decision-making. Decision trees also depict the
various results of each plan of events. Decision trees are fantastic techniques for assisting
you in deciding amongst multiple options. They give an efficacious structure for laying out
choices and investigating the potential results of those alternatives. Decision trees are
built by iteratively assessing distinctive aspects and using the trait that optimally separates
the information at every node.
 Decision_Science_Assignment_Sep_2022

Source: https://www.kdnuggets.com/2020/01/decision-tree-algorithm-explained.html

Concept and Analysis:

The EMV for a specific course of action is calculated as the weighted average pay off, which
is the aggregate of the payoff for each permutation of paths and states of nature multiplied
by the likelihood of an event occurrence of each result. The expected monetary value
(EMV) for every plan of events can be calculated using the rewards and possibilities of
various natural occurrences. The EMV analysis is usually mapped out using a decision tree
to represent the different option for a specific course of action. EMV helps to quantify and
compare risks in different aspects of the project.

Formula:

Expected Monetary Value (EMV) = Probability * Impact

Opportunity loss is the reduction suffered as a result of failing to choose the greatest
potential plan of events or technique. This choice category depends on the loss of an
opportunity or regret. The sum of money wasted due to not selecting the greatest option
in a particular condition of nature is referred to as opportunity loss or regret. The minimax
regret criterion uses the opportunity loss table to discover the option that minimises the
maximum opportunity loss in each alternatives.
 Decision_Science_Assignment_Sep_2022
In a decision tree analysis, expected monetary value analysis makes things simpler to
estimate risks, estimate the contingency reserve, and find the optimum option. During
this procedure, the risk attitude should be neutral; else, the estimation may worsen.
Furthermore, the accuracy of this analysis is dependent on the input data. A complete data
quality evaluation should be carried out. This strategy boosts confidence in meeting the
organization's goal.

In projects, the Expected Monetary Value can be used to make comparisons of risks. It
computes the average outcome whenever the forecast contains unpredictable possibilities
or occurrencies, which can be either favourable (possibilities) or unfavorable (risks)
(threats). Risks are represented as negative numbers, while opportunities are represented
as positive numbers.

1. Opportunity Loss Table:

Payoff Scenario 1 Scenario 2 Scenario 3 Scenario 4

(profit within one month
on one unit of share in
INR)
Reliance Industry ltd. 55 43 29 15
Maruti 26 38 43 51

Payoff Scenario 1 Scenario 2 Scenario 3 Scenario 4

Reliance Industry ltd. (55-55) (43-43) (43- 29) (51-15)
Maruti (55-26) (43-38) (43-43) (51-51)

Opportunity Loss Table

Payoff Scenario 1 Scenario 2 Scenario 3 Scenario 4

Reliance Industry ltd. 0 0 14 36

Maruti 29 5 0 0
 Decision_Science_Assignment_Sep_2022
2. Decision Tree:

3. The four probabilities (states of nature) assigned from Niharika’s research are as
follows: P(s1) = 0.4 P(s2) = 0.1 P(s3) = 0.3 P(s4) = 0.2.

Expected monetary value for the decision alternative for Reliance Industry ltd.:

EMV for scenario 1= 55(0.4) = 22

EMV for scenario 2= 43(0.1) = 4.3

EMV for scenario 3= 29(0.3) = 8.7

EMV for scenario 4=15(0.2) = 3

 Decision_Science_Assignment_Sep_2022
The expected monetary value for investing in Reliance Industry Ltd. is Rs.38

Expected monetary value for decision alternative for Maruti:

EMV for scenario 1= 26 (0.4)= 10.4

EMV for scenario 2= 38(0.1)= 3.8

EMV for scenario 3= 43(0.3)= 12.9

EMV for scenario 4= 51(0.2)= 10.2

The expected monetary value for investing in Reliance Industry Ltd. is Rs.37.3

A decision maker using expected monetary value will choose the maximum out of
expected monetary value for the decision:

Maximum of {38, 37.3} = 38

Conclusion:

Hence, we can conclude that the expected monetary value i.e. 38, and the decision would
be Reliance Industries Ltd.

Q2. From the following data, check the correlation of ‘Migrants person’
(Migration form Urban areas of J & K to another urban areas of J &K) with the
below given variables. Write your conclusion with respect to the correlation
coefficient and Scatter Diagram

Draw the scatter plot (you may use EXCEL, SPSS, Python, R etc.)

Perform the correlation for the following pairs of variables

Migrant person numbers V/s ‘Number of Factory/Workshop/Work shed etc.’

Migrant person number V/s ‘Number of commercial establishments’

Migrant person number V/s ‘Number of towns’

Migrant person number V/s ‘Population per sq. km.’

Data for the analysis

 Decision_Science_Assignment_Sep_2022

Districts Migrant Number of Number of Number Population

person Factory/ commercial of per sq. km.
numbers Workshop/ establishments towns
Workshed
etc.
Kupwara 2667 188 6571 10 2212
Badgam 5370 273 5552 9 1996
Leh(Ladakh) 2621 176 3898 3 1902
Kargil 650 61 1711 1 7635
Punch 2038 67 3605 3 1604
Rajouri 4011 236 4656 4 2390
Kathua 11306 504 6952 6 2079
Baramula 19382 663 12171 7 2871
Bandipore 4866 156 3258 3 1317
Srinagar 94844 3575 47986 5 4141
Ganderbal 3041 231 2418 3 1852
Pulwama 7939 257 4885 5 2087

Shupiyan 1700 30 1673 1 3007

Anantnag 13545 919 14079 12 2880
Kulgam 2621 243 3902 7 1619
Doda 2297 76 3016 2 1655
Ramban 1171 41 1768 3 783
Kishtwar 569 45 1765 1 23595
Udhampur 10873 549 6795 6 2475
Reasi 2085 28 3677 5 692
Jammu 139422 2410 46539 20 3034
Samba 5349 685 5162 6 1383

A2.

Correlation coefficients are being used to assess the strength and direction of an
association between variables. The correlation coefficient is a statistical concept that aids
in the establishment of a relationship between predicted and actual values acquired in a
statistical experiment. The estimated correlation coefficient explains the closeness of the
expected and actual values.

Correlation coefficient value always lies in between -1 to 1. A correlation value of 1

indicates that for every positive rise in one variable, there is a similar corresponding
increment in the other variable. A correlation coefficient of -1 shows that for every positive
rise in one variable, there is a fixed proportional reduction in the other variable. For
example, the amount of gas in a tank reduces in (nearly) perfect proportion to speed. Zero
 Decision_Science_Assignment_Sep_2022
indicates that there is no positive or negative rise for every increase. They are not
connected.

A scatter diagram depicts the association amongst two variables. A scatter diagram is
among the most effective tools for displaying a non-linear pattern. A scatter diagram gives
evidence to support a claim that two variables are connected. It is basically a two-
dimensional rectangular coordinate graph with points representing the values of the two
variables being studied.

Source: https://encrypted-
tbn0.gstatic.com/images?q=tbn:ANd9GcRS3A61Ddjl2ruPvTWBIQtg6G52ytCl9pWxxg&us
qp=CAU

Concept and Application:

Correlation coefficients quantify the degree of similarity amongst two variables. A variable
correlation shows that when one variable's value changes, the other variable appears to
shift in a number of directions. Understanding that relationship is beneficial because we
may use one variable's value to anticipate the value of the other variable. Correlation
coefficients are a quantitative measure of the direction and strength of this propensity to
change simultaneously. Correlation is a statistical concept that describes how two variables
move in tandem with each other. It is a numerical statistical metric that reflects the
magnitude and direction of the force amongst two or more variables. When two or more
variables move in the same direction, they are said to be positively correlated. If they
 Decision_Science_Assignment_Sep_2022
have a negative correlation it means they travel in opposite directions. The goal of using
correlations in research is to determine which variables are linked.

Pearson's correlation coefficient is calculated by taking the covariance of two variables and
dividing it by the sum of their standard deviations. It is commonly symbolised by (rho).
cov (X,Y) / X = (X,Y).

Scatter Diagrams are useful mathematical tools for investigating the relationship amongst
the two random variables. They take the form of a sheet of paper with data points
pertaining to the variables of interest spread over it. Scatterplots are an excellent
technique to immediately test for correlation between two sets of continuous variables.

Source: https://v.fastcdn.co/u/11443291/57605682-0-correlation-formula-.JPG

1. Using Excel, we can determine the correlation coefficient and obtain the following
data:
 Decision_Science_Assignment_Sep_2022
Migrant Number of Number of Number
person factory/Workshop/ commercial of
Districts numbers Workshed etc. establishments towns

Kupwara 2667 188 6571 10

Badgan 5370 273 5552 9

Leh(ladakh) 2621 176 3898 3

Kargil 650 61 1711 1

Punch 2038 67 3605 3

Rajouri 4011 236 4656 4

Kathua 11306 504 6952 6

Baramula 19382 663 12171 7

Bandipore 4866 156 3258 3

Srinagar 94844 3575 47986 5

Ganderbal 3041 231 2418 3

Pulwama 7939 257 4885 5

Shupiyan 1700 30 1673 1

Anantnag 13545 919 14079 12

Kulgam 2621 243 3902 7

Doda 2297 76 3016 2

Ramban 1171 41 1768 3

Kishtwar 569 45 1765 1

 Decision_Science_Assignment_Sep_2022
Udhampur 10873 549 6795 6

Reasi 2085 28 3677 5

Jammu 139422 2410 46539 20

Samba 5349 685 5162 6

Migrant person numbers

V/s ‘Number of
Factory/Workshop/Work
shed etc.’ 0.8973328316

Migrant person number

V/s ‘Number of
commercial
establishments’ 0.9665746707

Migrant person number

V/s ‘Number of towns’ 0.6629394793

Migrant person number

V/s ‘Population per sq. -
km.’ 0.0179593907

Interpretation:

Migrant person numbers V/s ‘Number of Factory/Workshop/Work shed etc.=

0.8973328316, It denotes a perfect positive correlation coefficient between the
two variables.

Migrant person number V/s ‘Number of commercial establishments’= 0.9665746707, It

denotes a perfect positive correlation coefficient between the two variables.

Migrant person number V/s ‘Number of towns’= 0.6629394793, It denotes a perfect

positive correlation coefficient between the two variables.

Migrant person number V/s ‘Population per sq. km.’=-0.0179593907, It denotes a

negative correlation coefficient which indicates an inverse relationship between both the
two variables.
 Decision_Science_Assignment_Sep_2022

2. Using excel to plot the scattered diagram of all the 4 correlation coefficients, we
get the following graph:

a. Scattered diagram for Migrant person numbers V/s ‘Number of

Factory/Workshop/Work shed etc.

b. Scattered diagram for Migrant person number V/s ‘Number of commercial

establishments’
 Decision_Science_Assignment_Sep_2022

c. Scattered diagram for Migrant person number V/s ‘Number of towns’

d. Scattered diagram for Migrant person number V/s ‘Population per sq. km.’
 Decision_Science_Assignment_Sep_2022

Conclusion:

Hence, we can conclude that a scatterplot displays the strength, direction, and form of the
relationship between two quantitative variables. A correlation coefficient measures the
strength of that linear relationship between the variables. The correlation coefficient and
scattered diagram of all the four variables are given above with their interpretation.

Q3a. The number of customers who enter a ‘German’ supermarket-

Gandhinagar each hour is ‘normally’ distributed with a mean of 600 and a
standard deviation of 200. The supermarket is open 16 hours per day. What is
the probability that the total number of customers who enter the supermarket
in one day is greater than 10,000?

A3(a).

Probability is synonymous with possibility. It also refers to a mathematical branch that

deals with the outcome of an event. The value ranges between zero to one. It simply
indicates the likelihood of something happening. It expresses the possible outcome of an
event occurring. The probability of all events in a sample space is always equal to the
value 1. A probability technique can be used to calculate the likelihood of an occurrence
 Decision_Science_Assignment_Sep_2022
of an event by simply dividing the favorable number of possibilities by the entire number
of possible outcomes. Since the number of good outcomes can never be more than the
possible outcomes are, the chance of an event occurring can range from 0 to 1.
Furthermore, the positive number of outcomes cannot be negative.

The formula for probability:

Probability of an event happening P(E) = Number of favorable outcomes/Total Number of

outcomes of an event.

Source: https://www.mathsisfun.com/data/images/probability-line.svg

Concept and Analysis:

The number of favorable outcomes to all possible outcomes of an event is the proportion,
which is known as probability. It measures how probable something is to occur. Probability
is a field of mathematics that focuses with estimating the likelihood of occurrence of a
particular event. The Z-score measures how far a given value deviates from the standard
deviation. The Z-score, also known as the standard score, is the number of standard
deviations above or below the mean for a given data set. The standard deviation reflects
the degree of variance within a particular data collection.

Given:

mean=600

Standard deviation = 200

Supermarket is open 16hours per day

Formula:
 Decision_Science_Assignment_Sep_2022

X̄ = ( Σ xi ) / n

X̄ = 10000/16 = 625

Formula:

z = (x̄ – μ) / σ

where x represents the raw score, μ is the mean of population, and σ represents the
population standard deviation.

z = (625 - 600)/200 = 0.125

P(X̄ > 625) = P(z > 0.125) = 0.4503

Conclusion:

We can conclude that the probability that the total number of customers who enter the
supermarket ‘German’ supermarket-Gandhinagar in one day is greater than 10,000 is
0.4503.

Q 3b. Shree Ganga Taploo University bookstore claims that 50% of its
customers are satisfied with the service and prices.

If this claim is true, what is the probability that in a random sample of 600
customers less than 45% are satisfied with services and price?

A3(b).

The term "probability" relates to the uncertainty of a specific event (or group of events)
occurring, presented on a linear scale from 0 (impossibility) to 1 (possibility), as well as a
percentage between 0 and 100 percent. Statistics is the study of a science dealing with
collection, analysis, interpretation, and presentation of numerical data. The more common
understanding of probability is that it is merely a measure of the occurrence of outcome
of an event, but Bayesians considers probability more highly subjective as a statistical
technique that attempts to estimate parameters of a statistical properties derived from
 Decision_Science_Assignment_Sep_2022
empirical distributions. When measured in standard deviation units, a z-score represents
the location of a raw score in respect of its proximity from the mean. The z-score can be
concluded as positive if the value is more than the mean and negative if the value is less
than the mean.

Concept and Analysis:

The likelihood of an occurrence is the proportion or ratio of the number of cases favorable
to it to the total number of cases feasible while nothing tells us to believe any of these
circumstances to happen more than any other, making them simultaneously feasible for
us. The Z test is a statistical test performed on data that roughly matches a normal
distribution. For hypothesis testing, the z test can be applied to one sample, two samples,
or proportions. Whenever the population variance is known, it determines whether or not
the means of two big samples vary. A z testing is used to assess if the means of two
populations vary or not, assuming the data follows a normal distribution.

Based on the provided information above, we have:

Sample size = 600 customers, n= 600

Probability of success= probability of satisfied customers = 50%,

So P= 0.5

Probability of failure= 1-P= Q= 0.5

Mean(X̄) = number of success needed = less than 45% of 600

= 45/100 × 600 = 270

= P(X<270)

= P(p<270/600)

=P(p<0.45)

Converting to standard normal variable, we get here is :

 Decision_Science_Assignment_Sep_2022
z = (x-μ)/σ

where x represents the raw score, μ is the mean of population , and σ represents the
population standard deviation.

P(Z< 0.45 − 0.5

—------------

√0.5 × 0.5/600

P(Z< -2.45)

Getting the data from the standard normal tables, we get is 0.0072

Conclusion:

Based on the above, we can conclude that the probability that in a random sample of 600
customers less than 45% satisfied with services and prices is 0.0072. Also, as 0.0072<0.5,
hence we can say that the probability of that event happening is unusual and thin.