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3-5.
1.What techniques are used to solve decision ±making problems under uncertainty?
a. Maximax (optimistic)
b. Maximin (pessimistic)
e. Minimax regret
a. The decision criterion locates the alternative with the highest possible gain; it has been
called an optimistic decision criterion.
a. This decision criterion locates the alternative that gives the best of the worst payoff,
and thus it has been called a pessimistic decision criterion.
3-6.
Define O OO ± The amount you would lose by not picking the best alternative. For
any state of nature, this is the difference between the consequences of any alternative and the
best possible alternative.
What decision ±making criteria are used with an opportunity loss table?
Describe how you would determine the best decision using the EMV criterion with a decision
tree.
3-16. Avrat Singh is the principal owner f Murugan Oil, Inc. After quitting his university
teaching job, Avrat has been able to increase his annual salary by a factor of over ! . At the
present time, Avrat is forced to consider purchasing some more equipment for Murugan Oil
because of competition. His alternatives are shown in the following table:
hp (environments)
hp 4!! ( uncertainty)
hp
"##
3-18. The ÷
is an expensive oil newsletter to which many oil giants subscribe, including
Avrat Sing. In the last issue, the letter described how the demand for oil products would be
extremely high. Apparently, the American consumer will continue to use oil products even if the
price of the Lubricant states threat the chances of a favorable market for oil products was 70%,
while the chance of an unfavorable market was only 30%.
OO O
O .