Question

Chapter Four decision analysis worksheet Chapter 4-Decision Analysis Worksheet Quantitative Methods for Business Mr. Bell Emily and Ashley have decided to expand their business in a resort area by building condominiums, a restaurant/shopping complex, or a marina. The success of the development property will be dependent, in part, upon the growth of the surrounding county and the tourism it can attract. The women have estimated the following net payoffs after a year of operation. Condos Restaurant/Shopping Marina Fair 10 5 -10 Good 25 15 30 Excellent 40 45 35 1. Dylan the optimistic man would tell them to use which approach? 2. Jason the conservative would advise them to use which approach? 3. Damian, the minimax regret specialist, shows them a EOL table. Show what it would look like. What would Damian advise them to do? 4. Lucas and Brianna stop by and explain that the table Emily and Ashley first used might be costs instead of payoffs. What would Lucas and Brianna advise the women to choose for a decision? (Please show the table) 5. Becky and Megan drop by with some data they have collected about the tourist response for the area during the next few years. They share the following probabilities with Emily and Ashley. Fair (3) Good (3) Excellent(.4) Please use the Management Scientist software Decision Analysis button to enter your input. The valuable Beverly suggests to the women that they could now calculate the expected value for their decisions. What is the best decision based on EVPI? 6. 7. What is the EVPI number?

Answer 1

1. Optimistic approach is Maximax, which chooses maximum of maximum alternatives under each approach.

Maximax = Max [ 40,45,35]=45

which corresponds to reataurant / shopping.

2. Maximin approach is the conservative approach where the decision is maximum of minimum alternatives under each approach.

Max [ 10,5.-10]=10 which corresponds to condos

3. Regret table

	Fair	Good	Excellent
Condos	0	5	5
Rest/ shopping	5	15	0
Marina	20	0	10

Minimax regret = minimum value of maximum regret

= Min [ 5,15,20]=5

which corresponds to Condos
4. If the values are cost in place of payoffs, the values are actually negative ones, which means that the lowest value is the best alternative

Payoff table will look like

	Fair	Good	Excellent
Condos	-10	-25	-40
Rest/ shopping	-5	-15	-45
Marina	10	-30	-35

Note: As per policies, I can answer first 4 parts of a question. Inconvenience is regretted.