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Below is an essay on "Small Business" from Anti Essays, your source for research papers, essays, and term paper examples.

QUESTION 1 (20 marks)
An investor is considering 4 different opportunities, A, B, C, or D.   The payoff for each opportunity will depend on the economic conditions, represented in the payoff table below.

Economic Condition
Poor Average Good Excellent
Investment   (S1)     (S2)   (S3) (S4)
A     50 75     20   30
B     80 15     40   50
C -100       300   -50   10
D     25 25     25   25

a) What decision would be made under maximax?

This is where the decision maker takes a gamble and looks at the best of the best, hence the decision
is to invest in opportunity C = 300

STATES OF NATURE |
Decisions |       Maximum in a Row |
A |           75 |
B |           80 |
C |           300     the best of the best |
D |           25 |

b) What decision would be made under maximin?

This is where the decision maker has a pessimistic outlook hence looks at the worst outcome and select
the best, so the best of the worst is to invest in opportunity D = 25

STATES OF NATURE |
Decisions |         Minimum in a Row |
A |             20 |
B |             15       |
C |           -100       |
D |             25       the best of the worst |

c) What decision would be made under minimax regret?

This calculation is done by subtracting each outcome in the column from the best outcome in the same column. Hence

* Calculation of Regrets
*                                         * Investment |                                         * Demand (States of Nature) |                                         * |
* |...

• Submitted by: sharonajubba
• on November 3, 2012
• Length: 1,505 words
• Views: 877
• Popularity Rank: 89238
• 1 rating(s)

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##### MLA Citation

"Small Business". Anti Essays. 23 Jun. 2018