DECISION SUPPORT TOOLS Assessment

Added on - 29 Nov 2019

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DECISION SUPPORT TOOLSDECISIONSUPPORT TOOLSAssessment item - 3Student name and id[Pick the date]
Question 1(a)There are differences between decision making under certainty, under risk and completeuncertainty. Decision under certainty may be defined as the situation in which the decisionmaking authority has complete information in relation to the decision and thus evaluation ofalternatives and choosing the right one becomes easy. Usually these decisions are takenbased on already framed rules since these situations are recurring(Holsapple, & Whinston,2013).In case of decision under risk, only limited information tends to be available with the decisionmaking outcome. Hence, subjective probabilities of the possible outcomes need to be computedand then through various decision making tools the alternative that leads to the maximum valuecreation is chosen. In case of decision under complete uncertainty, the relevant decision makerpossesses no information in relation to the various possible scenarios and respective chances ofthese happening. Hence, decision making through convention tools or wisdom is quite difficultwhich is why creative thinking is deployed on the part of the decision maker (Hair, et.al., 2015)b) 1) Based on the following table, the optimist would prefer the share market since it can givethe maximum possible returns.2) Based on the following table, the pessimist would prefer the share market since it can give themaximum returns in the worst possible case.1
3) Based on the following regret matrix, it is apparent that real estate ought to be selected.4) We need to compute the EMV or Expected Monetary Value for all the given choices.Stock Market (EMV) = 0.3*80000 + 0.7*(-20000) = $ 10,000Bonds (EMV) =0.3*30000 + 0.7*20000 = $ 23,000Real estate (EMV) = 0.3*25000 + 0.7*15000 = $ 18,000Based on the above, it is apparent that investment should be made in bonds.5) The relevant formula to be used is highlighted below.2
Thus, based on the given information provided and the above formula, EVPI has been computedbelow.Question 2(a)In order to decide on the decision which Jerry should make, the following table would proveuseful.The respective EMV computation is shown below.Large Bicycle Shop (EMV) = 80000*0.5 + (-40000)*0.5 = $ 20,000Small Bicycle Shop (EMV) = 30000*0.5 + (-10000)*0.5 = $ 10,000Since, the large bicycle shop would result in higher EMV, hence it would be preferred by Jerry.(b)The revision of prior probability is based on the following statistics regarding the accuracy ofthe market research conducted by the friend.3