Question
Mary is the Market Analyst of Nestle and she is asked to present an expansion plan for the company to the senior managers, which is
Mary is the Market Analyst of Nestle and she is asked to present an expansion plan for the company to the senior managers, which is either to construct a plant, open a distribution center, or do nothing. She was able to determine the expected payoff depending on the decision and type of market, which may be favorable, average, or unfavorable to the business. If the decision is to construct a plant, the company will gain $8,000 if the market turns out to be favorable, lose $1,000 if the company turns to be average, and lose $5,000 if the market turns out to be unfavorable. If the decision is to open a distribution center, the company will gain $4,000 if the market turns out to be favorable, gain $2,000 if the market turns out to be average, and lose $3,000 if the market turns out to be unfavorable. If the decision is to do nothing, the company will gain nothing, the company will gain nothing whether the market turns out to be favorable, average, or unfavorable.
Mary noted that the decision of each manager is affected by his or her personality. She described each manager as follows:
Edward is an optimistic person. Agnes is very conservative. Joel does not want to regret making the wrong decision.
What would be the decision of each manager based on the following criterion:
Laplace criterion Hurwicz criterion (alpha level of 0.75) Maximax criterion Minimax regret (savage criterion) Maximin criterion
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