The expected value and expected regret criteria

Reference no: EM131713588

The research and development manager for Beck Company is trying to decide whether the company should fund the development of a new lubricant. It is assumed that the project will be either a major technical success, a minor success or a failure. The company has estimated the value of a major success is $150,000, since the lubricant can be used in a number of products the company is making. If the project is a minor success, its value is $10,000 since Beck feels that the knowledge gained will benefit some other ongoing projects. If the project is a failure, it will cost the company $100,000. Based on the opinion of the scientists involved and the manager’s own subjective assessment, the assigned prior probabilities are: P (major success) = 0.15 P (minor success) = 0.45 P (failure) = 0.40

a) Construct an opportunity cost (i.e., regret) table.

b) Determine the optimal action using the maximin, maximax, Hurwicz (W = 0.4) and minimax regret criteria.

c) Determine the optimal action using the expected value and expected regret criteria.

d) Calculate the ERPI and EVPI.

Reference no: EM131713588

Questions Cloud

Compare the tomatoes produced by the two varieties : Tomatoes. Agricultural scientists are working on developing an improved variety of Roma tomatoes. Marketing research indicates that customers are likely.

Employees of the company expectations : Ethical behavior is very important to the success of a business. Over the years, many businesses in your community have suffered the negative publicity

Generally there are two types of logistic relationship : Generally there are two types of logistic relationship name both and pick one to discuss in more detail.

What would the standard deviation of the egg weights be : The average weight of the eggs produced by the young hens is 50.9 grams, and only 28% of their eggs exceed the desired minimum weight.

The expected value and expected regret criteria : Determine the optimal action using the expected value and expected regret criteria.

Consent between buyer and seller : The market exchange requires informed consent between buyer and seller in order to be ethical. Are most consumers informed

Discuss most favorable loan available in the market : A buyer can afford no more than $500 per month in payments. The most favorable loan available in the market is a 30 year loan at 10%.

What political institutions are needed : What do you think is the ideal arrangement of political institutions? How should the political institutions function - examine the structure of institutions

What mean and standard deviation should define the model : Trout. Wildlife biologists believe that the weights of adult trout can be described by a Normal model. They collected data from fishermen.

User Account

All Pages