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Tom sells hot dogs at the baseball stadium and is trying to decide how large an inventory of buns and hot dogs he should hold.

Tom sells hot dogs at the baseball stadium and is trying to decide how large an inventory of buns and hot dogs he should hold. The table shows his expected payoffs for the size of the crowd and the size of his inventory:

Inventory Large Crowd Medium Crowd Small Crowd
Large $20,000 $10,000 -$2,000
Average $15,000 $12,000 $6,000
Small $9,000 $6,000 $5,000

Using the Maximin criteria, what should his inventory be?

Using the Laplace criteria, what should his inventory be?

If he estimates that there is a 30% chance of a Large Crowd, 50% chance of a Medium Crowd, and 20% chance of a Small Crowd, what should his inventory be?

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To apply the Maximin criteria Tom should choose the inventory size that maximizes the minimum payoff ... blur-text-image

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