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Decision Making

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Remox Corporation is a British firm that sells high-fashion sportswear in the United States. Congress is currently considering the imposition of a protective tariff on imported textiles. Remox is considering the possibility of moving 50 percent of its production to the United States to avoid the tariff. This would be accomplished by opening a plant in the United States. The following table lists the profit outcomes under various scenarios.
Profits in 2008
No tariff Tariff
Option A Produce all output in Britain $1,200,000 $800,000
Option B Produce 50% in the United States $ 875,000 $1,000,000

Remox hires a consulting firm to assess the probability that a tariff on imported textiles will in fact pass a congressional vote and not be vetoed by the president. The consultants forecast the following probabilities:
Probability
Tariff will pass 30%
Tariff will fail 70%

a. Compute the expected profits for both options
b. Based on the expected profit only, which option should Remox use?
c. Compute the probabilities that would make Remox indifferent between options A and B using that rule
d. Compute the standard deviations for options A and B facing Remox Corporation
e. What decision would Remox make using the mean variance rule?
f. What decisions would Remox make using the coefficient of variation rule?

Using the information from above what decision would Remox make using each of the following rules if it had no idea of the probability of a tariff?

a. Maximax
b. Maximin
c. Minimax regret
d. Equal probablity criterion

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Please refer attached file for complete solution.

a. Compute the expected profits for both options
Expected profit for option A=0.70*1200000+0.30*800000=$1,080,000
Expected profit for option B=0.70*875000+0.30*1000000=$912,500

b. Based on the expected profit only, which option should Remox use?
Expected profit is higher in case of option A. It should be used.

c. Compute the probabilities that would make Remox indifferent between options A and B using that rule
Let the probability that tariff will pass be p
Expected profit for option A =(1-p)*1200000+p*800000=1200000-1200000p+800000p=1200000-400000p
Expected profit for option B =(1-p)*875000+p*1000000=875000-875000p+1000000p=875000+125000p

Remox will be indifferent if expected profit from both of the options is same.
i.e. ...

Solution Summary

Solution determines the better option by using various decision making models.

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"Everyone around this place just follows the status quo. No one ever has any unique ideas on how we can make this organization better. You just sit here and wait for me to give you directions on what to do. Then you follow those directions word-for-word without asking any questions or making any improvements. We need to change this attitude and change it quickly."

He then pointed out each of your group members stated, "I'm assigning you all to a working group. Your goal is to help me fix this problem. I want you to work together, do some research, and come up with concrete ideas and suggestions to fix this problem."

Your group must do analysis, have discussions (either via the small group chat or discussion board) and come to a consensus to prepare a report (paper) that addresses the following:

Part 1 - Define the term "group" after discussion with your fellow team members. Avoid repeating a dictionary definition. For this scenario what would constitute a "group"?

Part 2 - Are there any differences in how individuals and groups make decisions? If so what are they?

Part 3 - Identify the applicable decision concepts (theories, principles, paradoxes, etc.) from our learning all semester (not just the group decision concepts identified in Unit 5) that your group believes will best explain what is occurring within the organization. Be sure your group provides rational to support each of the concepts your group identifies.

Study Material The Psychology of Judgment and Decision making(Plous) Chapter 17-18 and earlier theories and thoughts concerning Decision Making concepts.

Part 4 - Identify at least three (3) recommendations (from your group to the CEO) that will help him improve or overcome the current decision making conditions within the organization.

thank you for your insight and professional thoughts.
very important group assignment. Best Regards

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