Chapter 4
AssignmentTutorOnline
Decision Analysis
MA609 Business Analytics and Data Intelligence Week 6: TUT6
Questions:
- The following payoff table shows profit for a decision analysis problem with two decision alternatives and three states of nature:
| State of Nature | |||
| Decision alternatives | S1 | S2 | S3 |
| d 1 | 250 | 100 | 25 |
| d 2 | 100 | 100 | 75 |
- Construct a decision tree for this problem.
- If the decision maker knows nothing about the probabilities of the three states of nature, what is the recommended decision using the optimistic, conservative, and minimax regret approaches?
- Video Tech is considering marketing one of two new video games for the coming holiday season: Battle Pacific or Space Pirates. Battle Pacific is a unique game and appears to have no competition. Estimated profits (in thousands of dollars) under high, medium, and low demand are as follows:
| Demand | |||
| Battle Pacific | High | Medium | Low |
| Profit | $1000 | $700 | $300 |
| Probability | 0.2 | 0.5 | 0.3 |
Video Tech is optimistic about its Space Pirates game. However, the concern is that profitability will be affected by a competitor’s introduction of a video game viewed as similar to Space Pirates. Estimated profits (in thousands of dollars) with and without competition are as follows:
| Space Pirates with competition | Demand | ||
| High | Medium | Low | |
| Profit | $800 | $400 | $200 |
| Probability | 0.3 | 0.4 | 0.3 |
| Space Pirates without competition | Demand | ||
| High | Medium | Low | |
| Profit | $1600 | $800 | $400 |
| Probability | 0.5 | 0.3 | 0.2 |
- Develop a decision tree for the Video Tech problem.
- For planning purposes, Video Tech believes there is a 0.6 probability that its competitor will produce a new game similar to Space Pirates. Given this probability of competition, the director of planning recommends marketing the Battle Pacific video game. Using expected value, what is your recommended decision?
