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What is the optimistic decision

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Problem: You are considering opening an independent gas station with a convenience store. Your problem is that you are not sure how large of a gas station to open. The level of profitability will depend on gasoline company advertising, demand for gasoline, and the size of the gas station. After investigating the market and prospects for the next year you have concluded that the following payoff table reflect the expectations for the next year.

Size of Station Good Market Fair Market Poor Market

Small 50,000 20,000 -10,000

Medium 80,000 30,000 -20,000

Large 100,000 30,000 -40,000

Very Large 300,000 25,000 -100,000

a) What is the optimistic (maximax) decision?

b) What is the pessimistic (maximin) decision?

c) What is the equally likely (LaPlace) decision?

d) What decision would you make using the criteria of realism (Hurwicz)? Assume that the a value is 0.8.

e) Using minimax regret (Opportunity Loss Regret) what size gas station should you open?

Reference no: EM132464732

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