An investor is considering investing in stocks, real estate, or bonds economic conditions. Suppose that the probabilities for good, stable and poor conditions are 0.2, 0.4 and … (figure it out), respectively. Table 1 shows the payoff returns for the investor’s decision situation. Table 1: Investment returns Economic Conditions Investment Good Stable Poor Stocks R5 000 R7 000 R3 000 Real estate -R2 000 R10 000 R6 000 Bonds R4 000 R4 000 R4 000 Assuming the probabilities of the occurrence of the state of nature are unknown, what will be the best investment alternative; a) If the decision maker is pessimistic about the future state, (3) b) If the decision maker strikes a compromise between the maximin and maximax, assuming the coefficient of pessimism is 0.2. (4) c) If the decision is based on opportunistic loss. (6) d) If we use the equally likelihood criterion
An investor is considering investing in stocks, real estate, or bonds economic conditions. Suppose that the probabilities for good, stable and poor conditions are 0.2, 0.4 and … (figure it out), respectively. Table 1 shows the payoff returns for the investor’s decision situation. Table 1: Investment returns Economic Conditions Investment Good Stable Poor Stocks R5 000 R7 000 R3 000 Real estate -R2 000 R10 000 R6 000 Bonds R4 000 R4 000 R4 000 Assuming the probabilities of the occurrence of the state of nature are unknown, what will be the best investment alternative; a) If the decision maker is pessimistic about the future state, (3) b) If the decision maker strikes a compromise between the maximin and maximax, assuming the coefficient of pessimism is 0.2. (4) c) If the decision is based on opportunistic loss. (6) d) If we use the equally likelihood criterion
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter9: Decision Making Under Uncertainty
Section: Chapter Questions
Problem 69P
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An investor is considering investing in stocks, real estate, or bonds economic conditions.
Suppose that the probabilities for good, stable and poor conditions are 0.2, 0.4 and … (figure it
out), respectively. Table 1 shows the payoff returns for the investor’s decision situation.
Table 1: Investment returns
Economic Conditions
Investment Good Stable Poor
Stocks R5 000 R7 000 R3 000
Real estate -R2 000 R10 000 R6 000
Bonds R4 000 R4 000 R4 000
Assuming the probabilities of the occurrence of the state of nature are unknown, what will be the
best investment alternative;
a) If the decision maker is pessimistic about the future state, (3)
b) If the decision maker strikes a compromise between the maximin and maximax, assuming
the coefficient of pessimism is 0.2. (4)
c) If the decision is based on opportunistic loss. (6)
d) If we use the equally likelihood criterion
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