Consider a decision analysis problem whose payoffs (in units of thousands of dollars) are given by following payoff table.

a. Which alternative should be chosen under the maximax criterion?
b. Which alternative should be chosen under the maximin criterion?
c. Which alternative should be chosen under the maximum likelihood criterion?
d. Which alternative should be chosen under Bayes' decision rule?
e. Use Tree Plan to construct and solve a decision tree for this problem.
f. Expanding the spreadsheet containing this decision tree as needed, perform sensitivity analysis with the decision tree by resolving when the prior probability of S1 is 0.2 and again when it is 0.6.
g. Now perform this sensitivity analysis systematically by generating a data table that shows the best alternative and the resulting expected payoff as the prior probability of S1 increases in increments of 0.04 from 0.2 to 0.6

Transcribed Image Text:

State of Nature S2 Alternative S1 A1 80 25 A2 50 АЗ 60 40 Prior probability 0.4 0.6