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Decision Analysis for Students

A group of friends is deciding between biking, hiking, and fishing based on a payoff table of enjoyment levels under different weather conditions. Using various decision criteria: Maximax is hiking (15 enjoyment in warm weather). Maximin is fishing (7 enjoyment in cold weather). Using Hurwicz criterion with an optimism level of 0.8, hiking has the highest weighted average (12.4). Under Laplace criterion of average payoffs, hiking again has the highest value (10.33). Minimax regret results in a 3-way tie between all options with the maximum regret being -7. The expected value of perfect information (EVPI) is 2.8, being the difference between the highest expected value with

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Lemar Anthony Cola
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96 views3 pages

Decision Analysis for Students

A group of friends is deciding between biking, hiking, and fishing based on a payoff table of enjoyment levels under different weather conditions. Using various decision criteria: Maximax is hiking (15 enjoyment in warm weather). Maximin is fishing (7 enjoyment in cold weather). Using Hurwicz criterion with an optimism level of 0.8, hiking has the highest weighted average (12.4). Under Laplace criterion of average payoffs, hiking again has the highest value (10.33). Minimax regret results in a 3-way tie between all options with the maximum regret being -7. The expected value of perfect information (EVPI) is 2.8, being the difference between the highest expected value with

Uploaded by

Lemar Anthony Cola
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Lemar Anthony Cola 19200267 BSCE – 3C

Module 05: Decision Analysis


A group of friends are planning a recreational outing and have constructed the following payoff
table to help them decide which activity to engage in. Assume that the payoffs represent their level
of enjoyment for each activity under the various weather conditions.
Weather:
Cold Warm Rainy
S1 S2 S3
Bike: A1 10 8 6
Hike: A2 14 15 2
Fish: A3 7 8 9
Probability 0.2 0.4 0.4

a. Maximax = A2
Cold Warm Rainy Maximum in a
S1 S2 S3 Row
Bike: A1 10 8 6 10
Hike: A2 14 15 2 15
Fish: A3 7 8 9 9

As you can see in the table, the option with the highest maximum profit is Hike: A2 in which
in warm weather, which indicates that this is the maximax.
b. Maximin = A3
Cold Warm Rainy Maximum in a
S1 S2 S3 Row
Bike: A1 10 8 6 6
Hike: A2 14 15 2 2
Fish: A3 7 8 9 7

As you can see in the table, the option with the highest minimum profit is Fish: A3 in which
in cold weather, which indicates that this is the maximin.
c. Hurwics
Cold Warm Rainy Criterion of
S1 S2 S3 Realism
(a = 0.8)
Bike: A1 10 8 6 9.2
Hike: A2 14 15 2 12.4
Fish: A3 7 8 9 8.6

Sample calculation:
Weighted average = a(maximum in row) + (1 – a)(minimum in row)
Bike:
Weighted average = 0.8(10) + (1 – 0.8) (6) = 9.2
Hike:
Weighted average = 0.8(15) + (1 – 0.8) (2) = 12.4
Fish:
Weighted average = 0.8(9) + (1 – 0.8) (7) = 8.6
As you can see in the table, the option with the highest criterion of realism is Hiking.
d. Laplace
Cold Warm Rainy Row Average
S1 S2 S3
Bike: A1 10 8 6 8
Hike: A2 14 15 2 10.33
Fish: A3 7 8 9 8

As you can see in the table, the options with the highest average is Hiking, which indicates
that this is the Equally likely (Laplace).
e. Minimax Regret = 3 WAY TIE
Cold Warm Rainy Minimax regret
S1 S2 S3
Bike: A1 10 – 14 = - 4 8 – 15 = -7 6 – 9 = -3 -7
Hike: A2 14 – 14 = 0 15 – 15 = 0 2 – 9 = -7 -7
Fish: A3 7 – 14 = -7 8 – 15 = -7 9–9=0 -7

One can choose any of the three activities. The maximum regret is the same (−7) in all three
cases.
f. What is the EVPI?
Cold Warm Rainy EMV
S1 S2 S3
Bike: A1 10 8 6 7.6
Hike: A2 14 15 2 9.6
Fish: A3 7 8 9 8.2
Probability 0.2 0.4 0.4

Bike:
0.2 × 10 + 0.4 × 8 + 0.4 × 6 = 7.6
Hike:
0.2 × 14 + 0.4 × 15 + 0.4 × 2 = 9.6
Fish:
0.2 × 7 + 0.4 × 8 + 0.4 × 9 = 8.2
Maximum EMV Is Hiking which is 9.6
EVwPI = 0.2 × 14 + 0.4 × 15 + 0.4 × 9 = 12.4
EVPI = EVwPi – Maximum EMV
EVPI = 12.4 – 9.6 = 2.8
EVPI = 2.8

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