Question
Peer Reply #1: Choose a classmate's post and review their decision analysis table. Add to their table by choosing a risk level for each state
Peer Reply #1: Choose a classmate's post and review their decision analysis table. Add to their table by choosing a risk level for each state of nature (assign a probability value to each). See Example.
- Calculate the EMV for each alternative.
- Discuss which alternative is best based on the best (maximum) EMV.
- Calculate the Expected Value with Perfect Information (EVwPI).
- Calculate the EVPI.
- Discuss how much money your classmate should pay for perfect information.
(CLASSMATES DISCUSSION POST)
What is the problem and objective of this decision?
In this scenario I am a hair salon owner and am wanting to increase profits. I am considering options to increase profits of the current salon or possibly opening a new salon. This decision will help me decide which alternative option I will choose.
Identify at least 3 alternatives and 3 states of nature.
I have chosen 4 alternatives; opening a new shop, expanding the hours of the current shop, adding 1 new booth to the current shop, and doing nothing. The states of nature are high demand, moderate demand, and low demand. My decision table is below.
Maximax Decision Process High Moderate Alternative Demand Demand Low Demand value Open New Shop 1500 250 100 1500 Expand hours at current shop 350 100 0 350 Add 1 new booth to current shop 500 250 100 500 Do nothing D 0 Maximax 1500 Hurwicz Criteria Decision Process 0= 0.21 State of State of State of Alternative Nature 1 Nature 2 Nature 3 value Open New Shop 1500 250 100 394 Expand hours at current shop 350 100 D 73.5 Add 1 new booth to current shop 500 250 100 184 Do Nothing D Hurwicz Criteria 394High Moderate Demand Demand Low Demand Open New Shop 1500 250 100 Expand hours at current shop 350 100 0 Add 1 new booth to current shop 500 250 100 Do nothing 0 0 0Expected Monetary Value (EMV) Decision Process Probabilities for State of Nature 0.62 0.27 0.11 1 Open new shop 930 67.5 11 1008.5 Expand hours at current shop 217 27 0 244 Add 1 new booth to current shop 310 67.5 11 388.5 Do nothing 0 0 0 0 EMV 1008.5 EVwPl and EVPI Maximum for each state of nature 1500 250 100 EVWPI 930 67.5 11 1008.5 EVPI OStep by Step Solution
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