Practice Questions on Decision Theory


5

1.         The research department of Hindustan Lever has recommended to the marking department to launch a shampoo of three different types. The marking manager has to decide one of the types of shampoo to be launched under the following estimated pay offs for various levels of sales :

Types of Shampoo

Estimated levels of Sale (units)

15,000

10,000

5,000

Egg Shampoo

30

10

10

Clinic Shampoo

40

15

5

Deluxe Shampoo

55

20

3

What will be the marking manager’s decision if

(i)      Maximum

(ii)     Minimax

(iii)    Maximax and

(iv)    Laplace criteria are applied?

 

2.         The ABC Company is faced with four decision alternatives relating to investments in a capital expansion programme. Since these investments are made in future, the company foresees different market conditions as expressed in the form of states–of –nature. The following table summarizes the decision alternatives, the various states–of–nature and the rate of return associated with each state–of–nature.

Decision

States – of – nature

q1

q2

q3

D1

17%

15%

8%

D2

18%

16%

9%

D3

21%

14%

9%

D4

19%

12%

10%

If the company has no information regarding the probability of the occurrence of the occurrence of the three states–of–nature, give the recommended decision for the decision criteria listed below :

(i)      Maximax criterion

(ii)     Maximin criterion

(iii)    Minimax regret criterion

(iv)    Laplace retional criterion

 

3.         The ABC Company is faced with four decision alternatives relating to investment in a capital expansion programme. Since these investments are made in future, the company foresees different market conditions as expressed in the form of states–of –nature. The following table summarizes the decision alternatives, the various states – of – nature and the rate of return associated with each state – of nature.

Decision

State – of – nature

q1

q2

q3

D1

17%

15%

8%

D2

18%

16%

9%

D3

21%

14%

9%

D4

19%

12%

10%

If the company has no information regarding the probability of the occurrence of the three states – of – nature, give the recommended decision for the decision criteria listed below :

(i)      Maximax criterion

(ii)     Maximin criterion

(iii)    Minimax regret criterion

(iv)    Laplaces’s rational criterion

(v)     Hurwicz alpha criterion (a = 0.75)


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