Chapter 3

Decision Analysis

Prepared by Lee Revere and John Large

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 Learning Objectives
Students will be able to:
1. List the steps of the decision-making
process.
2. Describe the types of decision-making
environments.
3. Make decisions under uncertainty.
4. Use probability values to make decisions
under risk.
5. Develop accurate and useful decision trees.
6. Revise probabilities using Bayesian analysis.
7. Use computers to solve basic decision-
making problems.
8. Understand the importance and use of utility
theory in decision theory.

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 Chapter Outline
3.1 Introduction
3.2 The Six Steps in Decision Theory
3.3 Types of Decision-Making
Environments
3.4 Decision Making under
Uncertainty
3.5 Decision Making under Risk
3.6 Decision Trees
3.7 How Probability Values Are
Estimated by Bayesian Analysis
3.8 Utility Theory

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 Introduction
 Decision theory is an analytical and
systematic way to tackle problems.
 A good decision is based on logic.

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 The Six Steps in
Decision Theory
1. Clearly define the problem at hand.
2. List the possible alternatives.
3. Identify the possible outcomes.
4. List the payoff or profit of each
combination of alternatives and
outcomes.
5. Select one of the mathematical
decision theory models.
6. Apply the model and make your
decision.

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 John Thompson’s
Backyard Storage
Sheds
Define problem To manufacture or market
backyard storage sheds

List alternatives 1. Construct a large new plant

2. A small plant
3. No plant at all

Identify outcomes The market could be favorable or

unfavorable for storage sheds

List payoffs List the payoff for each state of

nature/decision alternative
combination
Select a model Decision tables and/or trees can be
used to solve the problem

Apply model and Solutions can be obtained and a

make decision sensitivity analysis used to make a
decision

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 Decision Table
for Thompson Lumber

State of Nature
Alternative
Favorable Unfavorable
Market ($) Market ($)

Construct a
200,000 -180,000
large plant

Construct a
100,000 -20,000
small plant

Do nothing 0 0

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 Types of Decision-
Making Environments
 Type 1: Decision making under
certainty.
 Decision maker knows with certainty
the consequences of every alternative
or decision choice.
 Type 2: Decision making under risk.
 The decision maker does know the
probabilities of the various outcomes.
 Decision making under uncertainty.
 The decision maker does not know the
probabilities of the various outcomes.

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 Decision Making
under Uncertainty
 Maximax
 Maximin
 Equally likely (Laplace)
 Criterion of realism
 Minimax

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 Decision Table for
Thompson Lumber
 Maximax: Optimistic Approach
 Find the alternative that maximizes the maximum
payoff.

State of Nature
Alternative
Favorable Unfavorable
Market ($) Market ($)

Construct a
200,000 -180,000
large plant

Construct a
100,000 -20,000
small plant

Do nothing 0 0

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 Thompson Lumber:
Maximax Solution

State of Nature
Maximax
Alternative
Favorable Unfavorable
Market ($) Market ($)

Construct a
200,000 -180,000 200,000
large plant

Construct a
100,000 -20,000 100,000
small plant

Do nothing 0 0 0

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 Decision Table for
Thompson Lumber
 Maximin: Pessimistic Approach
 Choose the alternative with maximum
minimum output.

State of Nature
Alternative
Favorable Unfavorable
Market ($) Market ($)

Construct a
200,000 -180,000
large plant

Construct a
100,000 -20,000
small plant

Do nothing 0 0

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 Thompson Lumber:
Maximin Solution

State of Nature

Alternative Maximin
Favorable Unfavorable
Market ($) Market ($)

Construct a
200,000 -180,000 -180,000
large plant

Construct a
100,000 -20,000 -20,000
small plant

Do nothing 0 0 0

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 Thompson Lumber:
Hurwicz
 Criterion of Realism (Hurwicz)
 Decision maker uses a weighted average based
on optimism of the future.

State of Nature
Alternative Favorable Unfavorable
Market ($) Market ($)

Construct a
200,000 -180,000
large plant

Construct a
100,000 -20,000
small plant

Do nothing 0 0

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 Thompson Lumber:
Hurwicz Solution
CR = α*(row max)+(1- α)*(row min)

State of Nature
Criterion
of Realism
or
Alternative
Favorable Unfavorable Weighted
Market ($) Market ($) Average (α
= 0.8) ($)

Construct a
200,000 -180,000 124,000
large plant

Construct a
100,000 -20,000 76,000
small plant

Do nothing 0 0 0

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 Decision Making
under Uncertainty
 Equally likely (Laplace)
 Assume all states of nature to be
equally likely, choose maximum
Average.

State of Nature
Alternative
Favorable Unfavorable
Market ($) Market ($)

Construct a
200,000 -180,000
large plant

Construct a
100,000 -20,000
small plant

Do nothing 0 0

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 Decision Making
under Uncertainty

State of Nature

Alternative Avg.
Favorable Unfavorable
Market ($) Market ($)

Construct a
200,000 -180,000 10,000
large plant

Construct a
100,000 -20,000 40,000
small plant

Do nothing 0 0 0

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 Thompson Lumber;
Minimax Regret
 Minimax Regret:
 Choose the alternative that minimizes the
maximum opportunity loss .

State of Nature
Alternative
Favorable Unfavorable
Market ($) Market ($)
Construct a large
200,000 -180,000
plant
Construct a small
100,000 -20,000
plant

Do nothing 0 0

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 Thompson Lumber:
Opportunity Loss
Table
State of Nature

Alternative
Favorable Unfavorable
Market ($) Market ($)

Construct a large 200,000 – 0- (-180,000) =

plant 200,000 = 0 180,000

200,000 -
Construct a small 0- (-20,000) =
100,000 =
plant 20,000
100,000

Do nothing 200,000 – 0 = 0 0–0=0

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 Thompson Lumber:
Minimax Regret
Solution
State of Nature
Maximum
Alternative Opportunity
Favorable Unfavorable Loss
Market ($) Market ($)

Construct a
0 180,000 180,000
large plant

Construct a
100,000 20,000 100,000
small plant

Do nothing 200,000 0 200,000

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 In-Class Example 1
 Let’s practice what we’ve learned. Use
the decision table below to compute
(1) Maximax (2) Maximin (3) Minimax regret

State of Nature

Alternative Good Average Poor

Market Market Market
($) ($) ($)

Construct a
75,000 25,000 -40,000
large plant

Construct a
100,000 35,000 -60,000
small plant

Do nothing 0 0 0

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 In-Class Example 1:
Maximax

State of Nature

Alternative Good Average Poor Maximax

Market Market Market
($) ($) ($)

Construct a
75,000 25,000 -40,000 75,000
large plant

Construct a
100,000 35,000 -60,000 100,000
small plant

Do nothing 0 0 0 0

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 In-Class Example 1:
Maximin

State of Nature

Alternative Good Average Poor Maximin

Market Market Market
($) ($) ($)

Construct a
75,000 25,000 -40,000 -40,000
large plant

Construct a
100,000 35,000 -60,000 -60,000
small plant

Do nothing 0 0 0 0

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 In-Class Example 1:
Minimax Regret
Opportunity Loss Table

State of Nature

Good Average Poor Maximum

Alternative
Opp. Loss
Market Market Market
($) ($) ($)

Construct a
25,000 75,000 40,000 75,000
large plant

Construct a
0 0 60,000 60,000
small plant

Do nothing 100,000 35,000 0 100,000

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 Decision Making under
Risk
Expected Monetary Value:

n
EMV(Alternative)   Payoff S j * P ( S j )
j 1

where n  number of states of nature.

In other words:
EMV(Alternative n) = Payoff 1 * P(S1) +
Payoff 2 * P(S2) + … +
Payoff n * P(Sn)

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 Thompson Lumber:
EMV

State of Nature
Alternative Favorable Unfavorable EMV
Market ($) Market ($)

200,000*0.5 +
Construct a
200,000 -180,000 (-180,000)*0.5 =
large plant
10,000
100,000*0.5 +
Construct a
100,000 -20,000 (-20,000)*0.5 =
small plant
40,000
Do nothing 0 0 0*0.5 + 0*0.5 = 0
Probabilities 0.50 0.50

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 Thompson Lumber:
EMV Solution

State of Nature

Alternative Favorable Unfavorable EMV

Market Market
($) ($)

Construct a
200,000 -180,000 10,000
large plant

Construct a
100,000 -20,000 40,000
small plant

Do nothing 0 0 0

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 Expected Value of
Perfect Information
(EVPI)
 EVPI places an upper bound on what
one would pay for additional
information.
 EVPI is the expected value with
perfect information (EV|PI) minus
the maximum EMV.

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 Expected Value with
Perfect Information (EV|
PI)

n
EV | PI   (Best payoff for state of nature) * P(S j )
j1

n  number of states of nature.

In other words
EV‫׀‬PI = Best Payoff of S1 * P(S1) + Best
Payoff of S2 * P(S2) +… + Best
Payoff of Sn * P(Sn)

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 Expected Value with
Perfect Information (EV|
PI)

State of Nature

Alternative Favorable Unfavorabl EMV

Market e Market
($) ($)

Construct a
200,000 -180,000 10,000
large plant

Construct a
100,000 -20,000 40,000
small plant

Do nothing 0 0 0
Perfect
200,000 0 EV|PI = 100,000
Information

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 Expected Value of
Perfect Information

EVPI = EV|PI - maximum EMV

Expected value Expected value

with perfect with no additional
information information

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 Thompson Lumber:
EVPI Solution
EVPI = expected value with perfect
information - max(EMV)
EMV

= $100,000 - $40,000

= $60,000

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 In-Class Example 2

Let’s practice what we’ve learned. Using

the table below compute EMV, EV‫׀‬PI,
and EVPI.
State of Nature

Alternative Good Average Poor

Market Market Market
($) ($) ($)

Construct a
75,000 25,000 -40,000
large plant

Construct a
100,000 35,000 -60,000
small plant

Do nothing 0 0 0

Probability 0.25 0.50 0.25

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 In-Class Example 2:
EMV and EV‫׀‬PI
Solution
State of Nature

Alternative Good Average Poor EMV

Market Market Market
($) ($) ($)

Construct a
75,000 25,000 -40,000 21,250
large plant

Construct a
100,000 35,000 -60,000 27,500
small plant

Do nothing 0 0 0 0

Probability 0.25 0.50 0.25

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 In-Class Example 2:
EVPI Solution
EVPI = expected value with perfect
information - max(EMV)
EMV
= $100,000*0.25 + 35,000*0.50 +0*0.25
= $ 42,500 - 27,500
= $ 15,000

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 Expected Opportunity
Loss (EOL)
 EOL is the cost of not picking
the best solution.
EOL = Expected Regret

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 Thompson Lumber:
Payoff Table

State of Nature
Alternative
Favorable Unfavorable
Market ($) Market ($)

Construct a
200,000 -180,000
large plant

Construct a
100,000 -20,000
small plant

Do nothing 0 0

Probabilities 0.50 0.50

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 Thompson Lumber: EOL
The Opportunity Loss Table

State of Nature
Alternative
Favorable Unfavorable
Market ($) Market ($)

Construct a 200,000 –
0- (-180,000)
large plant 200,000

Construct a 200,000 -
0 – (-20,000)
small plant 100,000

Do nothing 200,000 - 0 0-0

Probabilities 0.50 0.50

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 Thompson Lumber:
Opportunity Loss Table

State of Nature
Alternative
Favorable Unfavorable
Market ($) Market ($)

Construct a
0 180,000
large plant

Construct a
100,000 20,000
small plant

Do nothing 200,000 0

Probabilities 0.50 0.50

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 Thompson Lumber:
EOL Solution

Alternative EOL

Large Plant (0.50)*$0 + $90,000

(0.50)*($180,000)
Small Plant (0.50)*($100,000) $60,000
+ (0.50)(*$20,000)
Do Nothing (0.50)*($200,000) $100,000
+ (0.50)*($0)

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 Thompson Lumber:
Sensitivity Analysis

Let P = probability of favorable market

EMV(Large Plant):
= $200,000P + (-$180,000)(1-P)

EMV(Small Plant):
= $100,000P + (-$20,000)(1-P)

EMV(Do Nothing):
= $0P + 0(1-P)

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 Thompson Lumber:
Sensitivity Analysis (continued)

250000
200000
Point 1 Point 2
150000 Small Plant
100000
EMV Values

50000
0
-50000 0 0.2 0.4 0.6 0.8 1
-100000
Large Plant
-150000 EMV
-200000
Values of P

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 Decision Making with
Uncertainty: Using the
Decision Trees
• Decision trees are most beneficial
when a sequence of decisions must
be made.

• All information included in a payoff

table is also included in a decision
tree.

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 Five Steps to
Decision Tree Analysis
1. Define the problem.
2. Structure or draw the decision tree.
3. Assign probabilities to the states of
nature.
4. Estimate payoffs for each possible
combination of alternatives and states
of nature.
5. Solve the problem by computing
expected monetary values (EMVs) at
each state of nature node.

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 Structure of Decision
Trees
A graphical representation where:
A decision node (indicated by a square
) from which one of several
alternatives may be chosen.

A state-of-nature node (indicated by a

circle ) out of which one state of
nature will occur.

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 Thompson’s Decision
Tree
Step 1: Define the problem
Lets re-look at John Thompson’s decision regarding
storage sheds. This simple problem can be depicted
using a decision tree.

Step 2: Draw the tree

A State of Favorable Market

Nature
Node
1
u ct nt
n str Pla Unfavorable Market
Coarge
A L
Decision Favorable Market
Node Construct
Small
Plant 2
Do Unfavorable Market
No
t hi
ng
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 Thompson’s Decision
Tree
Step 3: Assign probabilities to the states
of nature.
Step 4: Estimate payoffs.
A State of
Nature Node Favorable (0.5) $200,000
Market

1
u ct nt
n str Pla Unfavorable (0.5)-$180,000
C o a rg e Market
A L
Decision Favorable (0.5) $100,000
Construct Market
Node Small
Plant 2
Unfavorable (0.5)-$20,000
Do Market
No
t hi
ng

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 Thompson’s Decision
Tree
Step 5: Compute EMVs and make
decision.
A State
of Nature
Favorable (0.5) $200,000
Node Market

1
u ct nt EMV
n s t r Pl a Unfavorable (0.5)
C o a rg e =$10,000 Market -$180,000
L
A Decision Favorable (0.5)
Construct Market $100,000
Node Small
Plant
2
EMV Unfavorable (0.5)
Do
No =$40,000 Market -$20,000
thi
ng

0
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 Thompson’s Decision:
A More Complex
Problem
 John Thompson has the opportunity of
obtaining a market survey that will give
additional information on the probable state
of nature. Results of the market survey will
likely indicate there is a percent change of a
favorable market. Historical data show
market surveys accurately predict favorable
markets 78 % of the time. Thus
P(Fav. Mkt | Fav. Survey Results) = .78
 Likewise, if the market survey predicts an
unfavorable market, there is a 13 % chance
of its occurring.
P(Unfav. Mkt | Unfav. Survey Results) = .13
 Now that we have redefined the problem
(Step 1), let’s use this additional data and
redraw Thompson’s decision tree (Step 2).

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 Thompson’s Decision
Tree

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 Thompson’s Decision
Tree
Step 3: Assign the new probabilities to the states of
nature.
Step 4: Estimate the payoffs.

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 Thompson’s Decision
Tree
Step 5: Compute the EMVs and make decision.

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John Thompson Dilemma

John Thompson is not sure how much value

to place on market survey. He wants to
determine the monetary worth of the survey.
John Thompson is also interested in how
sensitive his decision is to changes in the
market survey results. What should he do?
Expected Value of Sample Information
Sensitivity Analysis

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 Expected Value of
Sample Information

The survey cost $10,000.

The expected value of $49,200 (when the
survey is used) is based on payoffs after
the $10,000 cost was subtracted.

The expected value with sample

information (EV with SI) is the
expected value of using the survey
assuming no cost to gather it. Thus, in
this example
EV with SI = $49,200 + $10,000 = $59,200.
Without the sample information, the best
expected value is $40,000. Thus, the
expected value would increase by
$19,200 if the survey was available free.

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 Expected Value of
Sample Information

Expected value Expected value of

with sample best decision
EVSI = information, without sample
assuming no information
cost to gather it

EVSI for Thompson Lumber = $59,200

- $40,000
= $19,200
Thompson could pay up to $19,200 and
come out ahead.
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 Sensitivity Analysis

How sensitive are the decisions to

changes in the probabilities?
e.g. If the probability of a favorable
survey were less than the current
value (0.6), would the survey still be
selected? How low would this have
to be to cause a change in the
decision?

Let p = probability of favorable

market

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Calculations for Thompson
Lumber Sensitivity
Analysis
EMV(node 1)  ($106,400) p  (   p )($2,400)
 $104,000 p  2,400

Equating the EMV with the survey to the

EMV without the survey, we have

$104,000 p  $2,400  $40,000

$104,000 p  $37,600

or

$37,600
p  0.36
$104,000

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 In-Class Problem 3
Let’s practice what we’ve learned

Leo can purchase a historic home for $200,000 or land in a

growing area for $50,000. There is a 60% chance the
economy will grow and a 40% change it will not. If it grows,
the historic home will appreciate in value by 15% yielding a
$30,00 profit. If it does not grow, the profit is only $10,000.
If Leo purchases the land he will hold it for 1 year to assess
the economic growth. If the economy grew during the first
year, there is an 80% chance it will continue to grow. If it did
not grow during the first year, there is a 30% chance it will
grow in the next 4 years. After a year, if the economy grew,
Leo will decide either to build and sell a house or simply sell
the land. It will cost Leo $75,000 to build a house that will
sell for a profit of $55,000 if the economy grows, or $15,000
if it does not grow. Leo can sell the land for a profit of
$15,000. If, after a year, the economy does not grow, Leo
will either develop the land, which will cost $75,000, or sell
the land for a profit of $5,000. If he develops the land and
the economy begins to grow, he will make $45,000. If he
develops the land and the economy does not grow, he will
make $5,000.
To accompany Quantitative Analysis 3-58 © 2006 by Prentice Hall, Inc.
for Management, 9e Upper Saddle River, NJ 07458
by Render/Stair/Hanna
 In-Class Problem 3:
Solution

Economy grows (.6)

2
No
growth
(.4)
Purchase
historic Economy
home grows (.8)

Build
house 6
No growth
1 (.2)
4
Sell
Economy land
Purchase grows (.6)
land

Economy
3 grows (.3)

No Develop 7
growth land
No growth
(.4) (.7)
5
Sell
land

To accompany Quantitative Analysis 3-59 © 2006 by Prentice Hall, Inc.

for Management, 9e Upper Saddle River, NJ 07458
by Render/Stair/Hanna
 In-Class Problem 3:
Solution

$22,000 Economy grows (.6) $30,000

2
No
growth $10,000
(.4)
Purchase
historic Economy
home grows (.8) $55,000
$47,000
Build
house 6
$35,000 No growth $15,000
1 (.2)
4
Sell $15,000
Economy $47,000 land
Purchase grows (.6)
land

Economy
3 grows (.3) $45,000
$17,000
$35,000

No Develop 7
growth land $5,000
No growth
(.4) (.7)
5
Sell $5,000
$17,000 land

To accompany Quantitative Analysis 3-60 © 2006 by Prentice Hall, Inc.

for Management, 9e Upper Saddle River, NJ 07458
by Render/Stair/Hanna
Estimating Probability Values
with Bayes’ Theorem
 Management experience or intuition
 History
 Existing data
 Need to be able to revise
probabilities based upon new data

Information about accuracy

of sample information.

Prior Posterior
probabilities Bayes’ Theorem probabilities

To accompany Quantitative Analysis 3-61 © 2006 by Prentice Hall, Inc.

for Management, 9e Upper Saddle River, NJ 07458
by Render/Stair/Hanna
 Bayesian Analysis
The probabilities of a favorable / unfavorable state of
nature can be obtained by analyzing the Market Survey
Reliability in Predicting Actual States of Nature.

Market Survey Reliability in Predicting

Actual States of Nature
Actual States of Nature

Result of Survey Favorable Unfavorable

Market (FM) Market (UM)
Positive (predicts P(survey positive|FM) P(survey positive|UM)
= 0.70 = 0.20
favorable market
for product)
Negative (predicts P(survey P(survey negative|UM)
negative|FM) = 0.30 = 0.80
unfavorable
market for
product)
To accompany Quantitative Analysis 3-62 © 2006 by Prentice Hall, Inc.
for Management, 9e Upper Saddle River, NJ 07458
by Render/Stair/Hanna
Bayesian Analysis (continued):
Favorable Survey
Probability Revisions Given a Favorable Survey

Conditional
Probability

Jo
Pr

State P(Survey
in
io
rP

tP
positive|State

Po bab
of
ro

Pr
ro

ste ili
b

o
of Nature b
ab

rio ty
Nature ab
i

ili
lit

r
y

ty
0.35
FM 0.70 * 0.50 0.35 = 0.78
0.45
0.10
0.20 * 0.50 0.10 = 0.22
UM 0.45

0.45 1.00

To accompany Quantitative Analysis 3-63 © 2006 by Prentice Hall, Inc.

for Management, 9e Upper Saddle River, NJ 07458
by Render/Stair/Hanna
 Bayesian Analysis (continued):
Unfavorable Survey
Probability Revisions Given an
Unfavorable Survey
Conditional
Probability
State P(Survey Pr Pri P
ob or Pr Join Pr oste
ob t ob r i o
of negative|State ab ab ab r
ili ilit ili
ty y ty
Natureof Nature)
0.15
FM 0.30 * 0.50 0.15 = 0.27
0.55
0.40
UM 0.80 * 0.50 0.40 = 0.73
0.55
1.00
0.55

To accompany Quantitative Analysis 3-64 © 2006 by Prentice Hall, Inc.

for Management, 9e Upper Saddle River, NJ 07458
by Render/Stair/Hanna
 Decision Making Using
Utility Theory
 Utility assessment assigns the worst
outcome a utility of 0, and the best
outcome, a utility of 1.
 A standard gamble is used to
determine utility values.
 When you are indifferent, the utility
values are equal.

To accompany Quantitative Analysis 3-65 © 2006 by Prentice Hall, Inc.

for Management, 9e Upper Saddle River, NJ 07458
by Render/Stair/Hanna
 Standard Gamble for
Utility Assessment

(p)
Best outcome
Utility = 1

e 1
a t i v
te r n
Al (1-p)
Worst outcome
Utility = 0
Alt
er nat
ive
2 Other outcome
Utility = ??

To accompany Quantitative Analysis 3-66 © 2006 by Prentice Hall, Inc.

for Management, 9e Upper Saddle River, NJ 07458
by Render/Stair/Hanna
Simple Example: Utility
Theory
Let’s say you were offered $2,000,000 right now
on a chance to win $5,000,000. The $5,000,000 is
won only if you flip a fair coin and get tails. If you
get heads you lose and get $0. What should you do?

$2,000,000
Of fer
c ce pt
A
$0
Heads
(0.5)
Rej
ec tO
ff e r Tails
(0.5)

$5,000,000
To accompany Quantitative Analysis 3-67 © 2006 by Prentice Hall, Inc.
for Management, 9e Upper Saddle River, NJ 07458
by Render/Stair/Hanna
 Real Estate Example:
Utility Theory
Jane Dickson is considering a 3-year real
estate investment. There is an 80 %
chance the real estate market will soar
and a 20 % chance it will bust. In a good
market the real estate investment will
pay $10,000, in an unfavorable market it
is $0. Of course, she could leave her
money in the bank and earn a $5,000
return. What should she do?

To accompany Quantitative Analysis 3-68 © 2006 by Prentice Hall, Inc.

for Management, 9e Upper Saddle River, NJ 07458
by Render/Stair/Hanna
 Real Estate Example:
Solution
p= 0.80 $10,000
U($10,000) = 1.0

s t in
n v e at e
I st
e a lE
R
(1-p)= 0.20 0
U(0)=0

Inv
est $5,000
Ba in
nk U($5,000)=p
=0.80

To accompany Quantitative Analysis 3-69 © 2006 by Prentice Hall, Inc.

for Management, 9e Upper Saddle River, NJ 07458
by Render/Stair/Hanna
 Utility Curve for Jane
Dickson
1
0.9
0.8
0.7
0.6
0.5
tility

0.4
U

0.3
0.2
0.1
0
$- $2,000 $4,000 $6,000 $8,000 $10,000
Monetary Value

To accompany Quantitative Analysis 3-70 © 2006 by Prentice Hall, Inc.

for Management, 9e Upper Saddle River, NJ 07458
by Render/Stair/Hanna
 Preferences for Risk

i sk der
R oi
Av

ce
re n
ff e
di
In
Utility

i sk
R
i sk e r
R ek
Se

Monetary Outcome
To accompany Quantitative Analysis 3-71 © 2006 by Prentice Hall, Inc.
for Management, 9e Upper Saddle River, NJ 07458
by Render/Stair/Hanna
 Decision Facing Mark
Simkin

Tack lands
point up (0.45)
$10,000

e 1
a t iv s
e rn lay
t
Al ark p ame
M he g Tack lands
t
point down (0.55)
-$10,000

Alt
er nat Mark does not play the game
ive
2 0

To accompany Quantitative Analysis 3-72 © 2006 by Prentice Hall, Inc.

for Management, 9e Upper Saddle River, NJ 07458
by Render/Stair/Hanna
Utility Curve for Mark
Simkin

1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
-$20,000 -$10,000 $0 $10,000 $20,000 $30,000

To accompany Quantitative Analysis 3-73 © 2006 by Prentice Hall, Inc.

for Management, 9e Upper Saddle River, NJ 07458
by Render/Stair/Hanna
Thompson Decision Tree
Problem Using QM for
Windows

To accompany Quantitative Analysis 3-74 © 2006 by Prentice Hall, Inc.

for Management, 9e Upper Saddle River, NJ 07458
by Render/Stair/Hanna
Thompson Decision Tree
Problem Using Excel

To accompany Quantitative Analysis 3-75 © 2006 by Prentice Hall, Inc.

for Management, 9e Upper Saddle River, NJ 07458
by Render/Stair/Hanna