Optimal Decision Strategies for Business Analysis

BUSINESS ANALYSIS
STUDENT ID:
[Pick the date]

Question 2
Profit payoff table for state of nature and decision alternatives is represented below.
(a) Recommended decision using optimistic, conservative and minimax regret approach
Optimistic Approach: Maximax
Decision D1 is considered to be more appropriate decision for the optimistic approach.
Conservative Approach: Maximin
Decision D3 is considered to be more appropriate decision for the conservative approach.
Minimax regret approach: Minimax of the losses
(Subtracting the payoffs from each element)
2

Decision 2 and Decision 3, would be more appropriate decision through minimax regret
approach.
(b) The minimax decision procedure is taken into account.
Decision 1 would be used which means optimist approach would be taken into consideration.
(c) When payoff table provides the cost rather than profit, then the recommended decision
using optimistic, conservative and minimax regret approach needs to be determined.
Optimistic Approach: Maximax
Decision 3 would be more appropriate decision.
Conservative Approach: Maximin
Decision 2 and Decision 3 would be more appropriate decision.
Minimax regret approach: Minimax of the losses
S1 S2 S3 S4 Max Regret
D1 6 0 2 0 6
D2 3 1 0 2 3
3

D3 1 2 2 6 6
D4 0 1 3 8 8
Decision 2 would be more appropriate decision
Question 8
Payoff table to represent the profit for state of nature and decision alternatives is represented
below.
(a) Graphical sensitivity analysis
Plot to show the expected value lines
 Left and right side of alternative shows state of nature
 Maximum probability would be 1 and thus, x axis would range between 0 and 1.
Equation for D1 = 2 + (10-2) p = 2 +8P
4