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Decision Analysis

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5. A payoff table (profits) is shown below:

States of Nature
Decisions S1 S2 S3
D1 10 8 6
D2 14 15 2
D3 7 8 9

a. Using the maximax criterion, what decision should be made by the decision maker?

b. Using the maximin criterion, what decision should be made by the decision maker?

c. Using an equal likelihood criterion, what decision should be made by the decision maker?

d. Using minimax regret criterion, what decision should be made by the decision maker?

e. If the probabilities of s1, s2, and s3 are 0.2, 0.4, and 0.4, respectively, what decision should be made by the decision maker?

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Solution Summary

This solution is comprised of a detailed explanation of the various aspects of Decision Analysis. This step-by-step calculation of these complicated topics provides students with a clear perspective of Maximax Criterion, Maximin Criterion, Equal Likelihood Criterion, Minimax Regret Criterion and Expected Value Criterion.

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