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ExampleforSection15.2
Consideradecisionanalysisproblemwhosepayoffs(inunitsofthousandsofdollars)are
givenbythefollowingpayofftable:
StateofNature
Alternative
S1
S2
A1
80
25
A2
30
50
A3
60
40
Priorprobability
0.4
0.6
(a)Whichalternativeshouldbechosenunderthemaximinpayoffcriterion?
Underthemaximinpayoffcriterion,thefollowingtemplateshowsthatalternativeA3
shouldbechosenbecause40isthemaximumintheMinimuminRowcolumn.
(b)Whichalternativeshouldbechosenunderthemaximumlikelihoodcriterion?
Underthemaximumlikelihoodcriterion,thefollowingtemplateshowsthatalternative
A2shouldbechosenbecauseithasthemaximumpayoffforthestateofnaturethathas
themaximumpriorprobability.
(c)WhichalternativeshouldbechosenunderBayes'decisionrule?
UndertheBayesdecisionrule,thefollowingtemplateshowsthatalternativeA3should
bechosenbecauseithasthemaximumexpectedpayoff.
(d)UsingBayes'decisionrule,dosensitivityanalysisgraphicallywithrespecttothe
priorprobabilitiestodeterminethecrossoverpointswherethedecisionshiftsfrom
onealternativetoanother.
Thegraphofsensitivityanalysisisshownbelow.Fromthegraph,wecanseethat
A2andA3crossatapproximatelyp=0.25,
A1andA3crossatapproximatelyp=0.43.
(e)Usealgebratosolveforthecrossoverpointsidentifiedinpart(d).
LetpbethepriorprobabilityofS1.
ForA1:EP=80p+25(1p)=55p+25.
ForA2:EP=30p+50(1p)=20p+50.
ForA3:EP=60p+40(1p)=20p+40.
A2andA3crosswhen20p+50=20p+40p=0.25.
A1andA3crosswhen55p+25=20p+40p=0.429.
Therefore,theoptimalpolicyistochooseA2whenp0.25,chooseA3when0.25p
0.429,andchooseA1whenp0.429.
ExampleforSection15.3
Anewtypeofphotographicfilmhasbeendeveloped.Itispackagedinsetsoffivesheets,
whereeachsheetprovidesaninstantaneoussnapshot.Becausethisprocessisnew,the
manufacturerhasattachedanadditionalsheettothepackage,sothatthestoremaytest
onesheetbeforeitsellsthepackageoffive.Inpromotingthefilm,themanufactureoffers
torefundtheentirepurchasepriceofthefilmifoneofthefiveisdefective.Thisrefund
mustbepaidbythecamerastore,andthesellingpricehasbeenfixedat$2ifthis
guaranteeistobevalid.Thecamerastoremaysellthefilmfor$1ifthepreceding
guaranteeisreplacedbyonethatpays$0.20foreachdefectivesheet.Thecostofthefilm
tothecamerastoreis$0.40,andthefilmisnotreturnable.Thestoremaychooseanyone
ofthreeactions:
1.Scrapthefilm.
2.Sellthefilmfor$2.
3.Sellthefilmfor$1.
(a)Ifthesixstatesofnaturecorrespondto0,1,2,3,4,and5defectivesheetsinthe
package,completethefollowingpayofftable.
Alternative
1
2
3
0
0.40
1.60
0.60
StateofNature
2
3
.40
0.40
0.00
(a)Thepayofftableisgivenbelow.
Alternative
1
2
3
0
0.40
1.60
0.60
1
0.40
0.40
0.40
State of Nature
2
3
0.40
0.40
0.40
0.40
0.20
0.00
4
0.40
0.40
0.20
5
0.40
0.40
0.40
(b)Thestorehasaccumulatedthefollowinginformationonsalesof60such
packages.
Qualityof
AttachedSheet
Good
Bad
Total
0
10
0
10
1
8
2
10
StateofNature
2
3
6
4
4
6
10
10
4
2
8
10
5
0
10
10
Thesedataindicatethateachstateofnatureisequallylikely,sothatthisprior
distributioncanbeassumed.Whatistheoptimaldecisionalternativeforapackage
offilm?
Sincethedataindicatethatthestatesofnatureareequallylikely,theexpectedpayoffof
eachalternativeiscalculatedasfollows:
E[payoff(alternative1)]=0.40.
1
5
E[payoff(alternative2)]= (1.60)+ (0.40)=0.067.
6
6
1
E[payoff(alternative3)]= (0.60+0.40+0.20+00.200.40)=0.10.
6
Theoptimaldecisionalternativeisalternative3,sellingthefilmfor$1.
(c)Nowassumethattheattachedsheetistested.Useaprobabilitytreediagramto
findtheposteriorprobabilitiesofthestateofnatureforeachofthetwopossible
outcomesofthistesting.
Theprobabilitytreediagramandtheresultingposteriorprobabilitiesaregivennext.
(d)Whatistheoptimalexpectedpayoffforapackageoffilmiftheattachedsheetis
tested?Whatistheoptimaldecisionalternativeifthesheetisgood?Ifitisbad?
IfthetestisGood,then
E[payoff(alternative1)|testisGood]=0.40.
1
2
E[payoff(alternative2)|testisGood]= (0.60)+ (0.40)=0.267.
3
3
1
4
1
2
E[payoff(alternative3)|testisGood]= (0.60)+ (0.40)+ (0.20)+ (0)
3
15
5
15
1
+ (0.20)=0.333.
15
IfthetestisBad,then
E[payoff(alternative1)|testisBad]=0.40.
E[payoff(alternative2)|testisBad]=0(0.60)+1(0.40)=0.40.
1
2
1
(0.40)+ (0.20)+ (0)
15
15
5
4
1
+ (0.20)+ (0.40)=0.133.
15
3
E[payoff(alternative3)|testisBad]=0+
Inbothcases,theoptimaldecisionalternativeisalternative3,sellingthefilmfor$1.
Theexpectedpayoffis0.1.
ExampleforSection15.4
Considerthedecisiontreebelow,withtheprobabilitiesateventnodesshownin
parenthesesandwiththepayoffsatterminalpointsshownontheright.Analyzethis
decisiontreetoobtaintheoptimalpolicy.
10
(0.5)
(0.5)
(0.5)
(0.5)
0
30
-10
-5
(0.4)
40
(0.3)
(0.6)
(0.7)
-10
10
UsingTreePlan,theoptimalpolicyisindicatedinthefollowingdecisiontreebythe
numberinsidethesquareboxateachofthethreedecisionnodes.Sincethisnumberis2
ineachcase,theoptimaldecisionateachdecisionnodeistheonethatcorrespondsto
takingthelowerbranchoutofthatnode.Thisisfurtheremphasizedinthefollowing
decisiontreebyhavingthebranchtofollowoutofeachdecisionnodebethethicker
branch.Theexpectedpayoffforthisoptimalpolicyis8,asindicatedbythe8nexttothe
decisionnodeontheleftthatinitiatesthedecisiontree.