DECISIONSUPPORT TOOLSAssignment - 3Student id[Pick the date]
Question 1(a)The various differences between the three situations are highlighted below (Taylor & Cihon, 2004).Level of information available is the highest for the decision under certainty and lowest for decision under complete uncertainty.The decision takes under certainty are programmable decisions and easy to make. Onthe contrary, the decision making under complete uncertainty is very tough and hence non-programmable decision. The decision making under risk lies in between the above two.The tools used are different. For decision making under certainty, conventions serve the purpose. For decision making under risk, there are tools such as decision tree and scenario analysis, NPV. However, for decision making under complete uncertainty, reliance is on intuition and creativity based on experience.(b)Given payoff matrix 1.The alternative which an optimist would select is shown below:1
2.The alternative which a pessimist would select is shown below:3.The alternative which is the indication by the criteria of regret is shown below:4.Probability of good economy = 0.3The optimum action after using expected monetary values =?It I apparent that a maximum expected monetary value is $23,000 and hence, it is recommend to make investment in the bonds. 2
5.Expected value of perfect information (EVPI) is computed below:EVPI = (0.3*80000) + (0.7*20000) – 23000 EVPI = $ 15,000Question 2 (a)Calculation of EMV is highlighted below:It present case, Jerry has two possible options i.e. to open a large shop or small shop. The profit computation for both the scenario favourable and unfavourable market is highlighted below (Medhi, 2001).The final table is highlighted below:The EMV is highest for large shop and hence, this is the best option for Jerry. (b)The probability revision data 3
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