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Quiz 1 Mon

The document outlines a decision-making problem for the company IU, presenting a payoff table with profits based on different market conditions and decision alternatives. It includes calculations for optimist and pessimist decisions, minimax-regret, expected monetary value, expected value of perfect information, and revised probabilities using Bayes theorem. Additionally, it discusses the potential value and efficiency of market research for informed decision-making.

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3 views

Quiz 1 Mon

The document outlines a decision-making problem for the company IU, presenting a payoff table with profits based on different market conditions and decision alternatives. It includes calculations for optimist and pessimist decisions, minimax-regret, expected monetary value, expected value of perfect information, and revised probabilities using Bayes theorem. Additionally, it discusses the potential value and efficiency of market research for informed decision-making.

Uploaded by

Ngọc Nizziy
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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PROBLEM:

The following payoff table provides profits (billion VND) based on various possible decision
alternatives (Large plant, Small plant, Do nothing) and various market conditions (favorable,
neutral, and unfavorable) of the company IU.

Alternatives Favorable market Neutral market Unfavorable market

Probability 0.2 0.5 0.3

Large plant 150 100 -60

Small plant 90 50 -13

Do nothing 0 0 0

a. What decision would an optimist make? (10 points) (large)

b. What decision would a pessimist make? (10 points) (do nothing)

c. What decision would a minimax-regret make? (10 points) (large/small)

d. What is the decision to maximize the expected monetary value? (10 points) (large with
EMV = 62)

e. Calculate the expected value of perfect information for this situation. (10 points) (18)

f. The company IU hires a consulting firm (KPMG) to conduct a market research. If the
market is actually favorable, the research result will indicate 50% of a favorable market,
30% of a neutral market, and 20% of an unfavorable market. If the market is actually
neutral, the research result will indicate 20% of a favorable market, 60% of a neutral
market, and 20% of an unfavorable market. If the market is actually unfavorable, the
research result will indicate 25% of a favorable market, 25% of a neutral market, and
50% of an unfavorable market. The cost of the market research is 2 billion VND. Using
the Bayes theorem to calculate the revised probabilities. (20 points)

P(MF|RF) = 0.36 P(MF|RN) = 0.14 P(MF|RU) = 0.14

P(MN|RF) = 0.36 P(MN|RN) = 0.69 P(MN|RU) = 0.34

P(MU|RF) = 0.27 P(MU|RN) = 0.17 P(MU|RU) = 0.52


g. Draw a completed decision tree for the problem including all the information of payoffs,
probabilities, and EMVs, and give recommendations to the company IU. (20 points)

Conduct survey

h. How much might the company IU be willing to pay for the market research? What is
the efficiency of research information? (10 points)

EVSI = 11,403

Efficiency = 63.35%

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