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Determine the approximate decision under uncertainty

Given the following conditional value table:

Very Favorable Average Unfavorable
Alternatives Market Market Market

Build new plant $350,000 $240,000 -$300,000
Subcontract $180,000 $ 90,000 -$ 20,000
Overtime $110,000 $ 60,000 -$ 10,000
Do nothing $ 0 $ 0 $ 0

Determine the approximate decision under uncertainty using:

a) Maximax
b) Maximin
c) Equally likely

Solution Preview

Maximax:

Alternative 1: 350,000
Alternative 2: 180,000
Alternative 3: 110,000
Alternative 4: 0

Applying the maximax criteria, the decision maker will select Alternative 1, ie, Building new plant which ...

Solution Summary

Build a new plant: Determine the approximate decision under uncertainty using a) maxi-max, b) maxi-min, c) equally likely

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