Respond to Classmates Discussion Post in Statistics Course
RESPOND TO CLASSMATES STATISTICS POST USING THE FOLLOWING DIRECTIONS:
First response: Choose a classmate’s post and review the decision analysis table. Add to this table by choosing a risk level for each state of nature (assign a probability value to each).
- Calculate the EMV for each alternative.
- Discuss which alternative is best based on the best (maximum) EMV.
- Calculate the Expected Value with Perfect Information (EVwPI).
- Calculate the EVPI.
- Discuss how much money your classmate should pay for perfect information.
POST 1:
- I am the business owner for my personal business, “The El-parasol!” I have bikes in various locations around town. Business is doing very well and I am considering expanding my business to our neighboring town.
- The three alternatives would be:
- Expand fully to neighboring town with 3 new bikes
- Pilot the expansion with just 1 new bike
- Stay status quo – do not expand
The tree states of nature would be:
- Serious demand for good nutrition
- Moderate demand for good nutrition
- Nobody cares about good nutrition
- On a good day, I sell about $280 in smoothies per bike and it costs about $80 for the electricity and staffing. Thus, a net income of about $200 per day.
On a moderate day, I sell about $180 in smoothies per bike and it still costs about $80 for electricity and staffing. Thus, a net income of about $100 per day
On a poor day, I sell about $30 in smoothies per bike and it still costs about $80 for electricity and staffing. Thus, a net loss of about $50 per day
- I will set up my decision table based on the above profit/losses per smoothie bike.
|
Profit |
Good nutritional demand |
Moderate nutritional demand |
Poor nutritional demand |
|
probability |
|||
|
3 new bikes |
600 |
300 |
-150 |
|
1 new bike |
200 |
100 |
-50 |
|
0 new bikes |
0 |
0 |
0 |
- For decision analysis with uncertainty, I will choose to use the Optimistic and Equally Likely strategies.
The Optimistic (Maximum) decision is to build 3 new bikes with a possibly payoff of $600 per day.
For the equally likely strategy, I take the average payoff for each alternative. I can do this, by setting the probability for each state of nature to be 1/3 ≈ 0.33. The Equally Likely decision is still to build 3 new bikes with a possibly payoff of $200 per day.
