Week 8: Assignment for points: DM under uncertainty and risks (basic methods)

Assign. 1. Company X is considering expanding. There are several possible ways to grow (XL size do XS size); one alternative is the status quo—not to do anything. Regarding market behaviour, there are four possible events: expansion, stagnation, recession and corona lockdown. In the payment matrix, the payments (profits and losses) will be achieved if the company selects some option and any of the events appear (in thousands of euros).

1. Which alternative is to be selected by a person unwilling to take risks?
2. Which alternative is to be selected by a person with an attitude to take risks?
3. Different persons will select what options using the Hurwitz criterion, α=0, 0.1, 0.2, ..., 0.9, 1?
4. What is the decision if the Laplace criterion is to be applied?
5. What is the decision if the Savage criterion is to be applied?
6. What is the decision if the expected value criterion is to be applied?

Assign 2. II. The person is thinking of selling roses on Saturday evenings to couples. The selling price (sp) is 5 €. The purchase price (pp) is 3€ per rose. The demand is expected to be between 8 and 15 roses. The person can prepare to sell (purchase) a minimum of 8 roses and a maximum of 15 roses. 

• Present the matrix of the payment for this case. (Hint: The variable under a person’s control (alternatives in the decision-making process) is the purchase for selling, and the variable that is not under his/their control (events) is demand. The payment can be calculated using the simple formula (P=sp*sellingquantity – pp*purchasequantity). The person does not pay taxes.
• Apply methods for decision-making under uncertainty and risks (as in the first assignment).

Please present the calculation processes for each item in both assignments.