A local real estate investor in Orlando is considering three alternative investments; a motel, a

restaurant, or a theater. Profits from the motel or restaurant will be affected by the availability of

gasoline and the number of tourists; profits from the theater will be relatively stable under any

conditions. The following payoff table shows the profit or loss that could result from each

investment:Investment Weather Conditions Shortage Stable Supply Surplus Motel

$

-

7,500

$12,000

$23,000

Restaurant

3000

7,000

6,500

Theater

5000

6,000

4,000

Determine the best investment, using the following decision criteria.

a.

Maximax

b.

Maximin

c.

Minimax regret

d.

Hurwicz ( = 0.4

)

e.

Equal likelihood

States of Nature

Summary

Decision

Decision

Gasoline Availablity

a) maximax

Motel

Investment

Shortage

Stable Supply

Surplus

Maximum

Minimum

b) maximin

Theater

Motel

-$7,500

$12,000

$23,000

$23,000

-$7,500

c) minimax regret

Motel or Restaurant

Restaurant

$3,000

$7,000

$6,500

$7,000

$3,000

d) Hurwicz (alpha = 0.4)

Theater

Theater

$5,000

$6,000

$4,000

$6,000

$4,000

e) Equal Likelihood

Motel

Maximax decision =

Maximin decision =

Regret Table

States of Nature

Decision

Gasoline Availablity

Investment

Shortage

Stable Supply

Surplus

Maximum

Motel

$12,500

$0

$0

$12,500

Restaurant

$2,000

$5,000

$16,500

$16,500

Theater

$0

$6,000

$19,000

$19,000

Minimax regret =

Hurwicz
alpha =	0.3	Decision:
1 - alpha =	0.7
Motel	$1,650
Restaurant	$4,200
Theater	$4,600
Equal Likelihood
Motel	$9,167	Decision:
Restaurant	$5,500
Theater	$5,000