2.6 The owner of Senireka Construction Company must decide whether to engage his company in a housing development project, a shopping complex project, or to lease all the company's equipment to another company. The profit that will result from each alternative will be determined by whether the material costs remain stable or increase. The profit from each alternative given the two possibilities for material costs is shown in the following payoff table. Decision Alternative Material cost Stable Increase Housing Project RM70,000 RM30,000 Shopping Complex RM105,000 RM20,000 Leasing RM40,000 RM40,000 a) Determine the best decision using the following decision criteria: Maximax Maximin iii) Minimax regret iv) Hurwicz (a = 0.2) Equal likelihood b) What is the expected value of perfect information (EVPI) and how it is computed? What are the differences between EVPI and the expected value of sample information (EVSI)? C) Suppose the owner of Senireka has estimated the probability of cost remaining stable is 0.3, what is the best decision alternative using the expected value criterion? Calculate the EVPI? 2.7 Ever since Majlis Daerah Cheng announced it would build a sports center at either site A, B or C, land near those sites has been in high demand. Karim is the real estate manager of a restaurant chain and he plans to construct a new cafe near the sports center. He tries to identify the most suitable plot of land. He has estimated the payoff (RM) in the following table. Alternative Site selected by Majlis Daerah Cheng A B C A 25 -10 -10 B 10 20 -10 C -5 -5 10 a) What is his optimal decision if he uses: 1) Equally likely (Laplace) criterion? Pessimistic decision criterion? b) Assume that the following probabilities have been assessed States of nature Probabilities Majlis Daerah Cheng will select site A 0.3 Majlis Daerah Cheng will select site B 0.5 Majlis Daerah Cheng will select site C 0.2