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Example For Decision Making Criteria

A farmer must decide which crop to plant - corn, wheat, or rice. The profit from each crop depends on whether a new trade bill passes the Senate. If it passes, corn would profit $2 million, wheat $1.1 million, and rice $1.4 million. If it fails, profits would be $700k, $500k, and $1.2 million respectively. Using different decision criteria, corn is identified as the best crop under maximax and minimax regret, while wheat is best under maximin.

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Arly Kurt Torres
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536 views

Example For Decision Making Criteria

A farmer must decide which crop to plant - corn, wheat, or rice. The profit from each crop depends on whether a new trade bill passes the Senate. If it passes, corn would profit $2 million, wheat $1.1 million, and rice $1.4 million. If it fails, profits would be $700k, $500k, and $1.2 million respectively. Using different decision criteria, corn is identified as the best crop under maximax and minimax regret, while wheat is best under maximin.

Uploaded by

Arly Kurt Torres
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as XLSX, PDF, TXT or read online on Scribd
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Example for Decision Making Criteria

1 A farmer in Region 11 must decide which crop to plant next year on his land: corn, wheat or rice.
The return from each crop will be determined by whether a new trade bill with Hongkong passes the Senate.
Profit ofthe farmer will realize from each crop given the two possible results on the trade bill is shown the following pa
Determine the best crop to plant using the decision criteria:
Trade Bill
Crop
Pass Fail
Corn 2,000,000.00 700,000.00
Wheat 1,100,000.00 500,000.00
Rice 1,400,000.00 1,200,000.00

Solution:
Maximax Criterion Maximin Criterion
Step1 Select the column with maximum payoff Step1 Select the column with minimum payoff
Trade Bill Trade Bill
Crop Crop
Pass Fail Pass
Corn 2,000,000.00 700,000.00 Corn 2,000,000.00
Wheat 1,100,000.00 500,000.00 Wheat 1,100,000.00
Rice 1,400,000.00 1,200,000.00 Rice 1,400,000.00

Step2 Identify the highest maximum payoff. Step2 Identify the highest maximum payoff.
Crop Crop
Maximum Payoff Minimum Payoff
Corn 2,000,000.00 Corn 700,000.00
Wheat 1,100,000.00 Wheat 500,000.00
Rice 1,400,000.00 Rice 1,200,000.00
Thus, planting of corn will result in a maximax payoff of P2M. Thus, planting of wheat will result in a minimum pa
ses the Senate.
s shown the following payoff table.

Minimax Regret Criterion


nimum payoff Step1 Determine the largest element in both column
Trade Bill Trade Bill
Crop
Fail Pass Fail
700,000.00 Corn 2,000,000.00 700,000.00
500,000.00 Wheat 1,100,000.00 500,000.00
1,200,000.00 Rice 1,400,000.00 1,200,000.00

Step2 Subtract every element from the largest payoff in both columns
Pass Fail
Corn 2M-2M=0 Corn 1.2M-700k=500k
Wheat 2M-1.1M=900k Wheat 1.2M-500k=700k
Rice 2M-1.4M=600k Rice 1.2M-1.2=0

ill result in a minimum payoff of P500k.


Step3 Select the largest amount in each row
Trade Bill
Crop Crop
Pass Fail
Corn 0 500,000.00 Corn
Wheat 900,000.00 700,000.00 Wheat
Rice 600,000.00 0 Rice

Step4 Identify the maximum regrets


Crop
Minimax Payoff
Corn 500,000.00
Wheat 900,000.00
Rice 600,000.00
Thus, planting of corn will result in, at most 500k in regret.
Minimax Payoff
500,000.00
900,000.00
600,000.00
Example for Expected value
1 If a man purchase a raffle ticket, he will win a first prize of 500k or a second price of 200k with probabilities 0.0001 and 0.0
What should be a fair price to pay for the ticket?
E(x)= (500k) (0.0001) + (200k) (0.0005)
E(x)= 50 +100
E(x)= P150

2 A gambler tosses a dice. If a 1,3 or 5 appears, the gambler will be paid P9; if a 2, or 4 turns up, he will lose P9; and if 6 is sho
he will win P12. Determine the expectation of the gambler.

Let P(A)=probability of 1,3 or 5 will appear


Let P(B)=probability of 2 or 4 will appear
Let P(C)=probability of 6 will appear
Take note that there are six faces of a regular die which serves as the possible outcome,therefore the probabilities of A, B
h probabilities 0.0001 and 0.0005.

, he will lose P9; and if 6 is showing,

fore the probabilities of A, B and C are as follows:

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