A company has two alternatives and payoff for those alternative under various states of nature as given in the table below
|
|
State of Nature
|
|
|
Alternative
|
S1
|
S2
|
S3
|
|
A1
|
220
|
170
|
110
|
|
A2
|
200
|
180
|
150
|
|
Prior Probability
|
0.6
|
0.3
|
0.1
|
Solve the following
(a) Which alternative should be chosen using maximin criteria?
(b) Which alternative should be chosen using maximum likelihood criteria?
(c) Show the above two parts in excel
(d) Using Bayes' decision rule, do sensitivity analysis graphically with respect to prior probabilities of S1 and S2. Determine the crossover point.
(e) Repeat (d) for prior probabilities of S1 and S3
(f) Repeat (d) for prior probabilities of S2 and S3