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Making Uncertainty Decisions Using Different Driteria

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The expected savings in equipment maintenance costs for three different policies of preventive maintenance (PM1, PM2, and PM3) and three levels of operation of the equipment are shown:

Operation Level 1 Operation Level 2 Operation Level 3
PM1 $60,000 $75,000 $20,000
PM2 $50,000 $75,000 $80,000
PM3 $90,000 $60,000 $60,000

1. Which preventative maintenance policy should be chosen under the Laplace Principle?

2. Which policy should be chosen under the maximin rule?

3. Which alternative should be chosen under the Hurwicz rule with a = 0.8?

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Solution Summary

A savings table is used to make uncertainty decisions using maximin, Hurwicz, and Laplace criteria.

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a. Laplace: You take each event as having equal probability. So, in this case there are three possibilities, hence each should have a probability of 0.33. Now multiply each by 0.33 to get the following ...

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