A developer is planning a new office complex, which may include some retail space. The possible percentages of retail space that the developer is considering are: none, 20%, or 40%. The desirability of the various percentages of retail space depends on the demand for office space. The estimated yearly profits (in $1,000s) for the different retail percentages and office space demand levels are given in the accompanying table.
Office Space Demand
Retail Percentage Low Medium High
None -100 100 250
20 percent 150 200 200
40 percent 300 150 100
a. Determine what the percentage allocation of retail space should be using the maximax, maximin, equally likely, and minimax regret procedures.
b. The developer's assessments of the probabilities of the different office space demand levels are: P(low) = .3, P(moderate) = .4, P(high) = .3. Determine the percentage allocation of retail space that maximizes expected yearly profits. Find the expected value of perfect information.