The Decision Support Tool

Added on - 28 Mar 2020

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Question 1(a)Certain differences which are prevalent between the decision making under givensituations are as follows (Eriksson & Kovalainen, 2015).1)The decision making under certainty is the least strenuous since all the reliableinformation is already present and thus decision making is very straightforward. Theunderlying complexity tends to increase in case of decision under risk as the outcomesare probabilistic. However, the complexity reaches the highest level for completeuncertainty decision making due to absolute absence of credible information.2)Further, for decision under certainty, there are established procedures along withconventions which provide the decision. However, in case of decision under risk, themathematical and computational tools are deployed so as to compute the outcome ofthe various possible alternatives in financial terms. But for decision making whencomplete uncertainty prevails, then the input based conventional tools do not yieldresult and the decision maker would deploy more creative approaches along withintuition (Hair et. al., 2015).b) 1) Optimist – Preferred choice stock market2) Pessimist- Preferred choice bonds3) Regret Matrix Criterion – Preferred choice real estate
4) EMV Criterion – Preferred choice is bonds.5) Probability of a good economy = 0.3Probability of a poor economy = 0.7Best outcome in a good economy = $ 80,000 (stocks)Best outcome in a poor economy = $ 20,000 (bonds)EVPI = (0.3*80000) + (0.7*20000) – 23000Computing the above, EVPI= $ 15,000Question 2(a)The expected monetary value computation is captured in the following table.As the EMV is higher for a larger shop, hence Jerry should open the same to maximise gains.
(b)The accuracy of the market research offered by the friend is highlighted as follows.Favourable Study (Probability Revision)Unfavourable Study (Probability Revision)c)Computation of posterior probability
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