3. The oil company oflndia is interested in acquiring a piece ofland which is considered likely to contain oil deposits. The company has the option of

(a) buying the land outright,

(b) obtaining an option to buy, drill for oil and if found exercise the option, and

(c) not buying or obtaining option. There are three possibilities on such land: large oil reserves may be found; minor reserves may be found, or there may be no oil. The pay-offs (in lacs of Rs) resulting from various combinations of acts and events are tabulated below:

What action should be taken by the company when the decision criterion is:
(i) Laplace, (ii) Maximin, (iii) Maximax, (iv) Minimax Regret, and (v) Expected paY-off (when the probabilities of obtaining large, minor, and no reserves are estimated to be 0.2, 0.5 and 0.3, respectively)?

Transcribed Image Text:

Acts Buy land Obtain option No action Large Reserves 40 28 0 Minor Reserves 10 1 0 No Oil -25 -2 0