Mickey Lawson is considering investing some money that he inherited. The following payoff table gives the profits that would be realized during the next year for each of three investment alternatives Mickey is considering:
Investment
Options Good Economy Poor Economy
Stock market $80,000.00 $-20,000.00
Bonds $30,000.00 $20,000.00
CDs $23,000.00 $23,000.00
Probabiity .5 .5
a) Mickey has always been a very optimistic decision maker,
Of the three types of Decision making Evnironments that are possible, what type of decision is Mickey facing?
What decision criterion should he use?
What alternative is best?
b) Mickey's wife has a pessimistic attitude, if Mickey takes her attitude into consideration,
What decision criterion should Mickey use?
What alternative will he select?
c) Mickey's son, Bob, can't decide if he is optimistic or pessimistic. Bob is a financial analyst, Mickey trusts Bob's judgment. Bob believes his coefficient of realism a, is .65
What decision criterion should Mickey now use?
What alternative will he select?
d) Mickey's daughter, Cindy, likes to use the average payoff to make her decisions on her financial affairs.
What decision criterion should Cindy use?
What alternative will she select?
e) Develop an opportunity loss table for the investment problem that Mickey Lawson faces.
If Mickey wanted to Minimize his maximum regret, what decision would he choose?
f) If Mickey wanted to minimize the expected opportunity loss?
What is the minimum EOL?
g) What decision would maximize Mickey's expected profits?
h) What is the maximum amount that should be paid for a perfect forecast of the economy?
i) Considering all the decisions calculated above, what do you think Mickey should do