3.10 case 5 decision theory
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This document presents Case 5 of decision theory. It discusses a consumer goods manufacturer deciding between two new products and advertising levels. The profit tables for the products Ozone and Life are given under different demand scenarios and advertising strategies. It asks to recommend the best product and advertising level based on expected value. It also asks to calculate the expected value of perfect information for each product. The document then discusses the various decision making criteria that can be used including maximin, maximax, Laplace, Hurwicz, minimax regret and expected monetary value. It provides an example application of these criteria to a case involving stocking different inventory levels based on demand states.
3.10 case 5 decision theory
- 1. www.sanjivanimba.org.in Unit No.3. DECISION SCIENCE Presented By: Dr. V. M. Tidake Ph. D (Financial Management), MBA(FM), MBA(HRM) BE(Chem) Dean, EDP & Associate Professor MBA 1 Sanjivani College of Engineering, Kopargaon Department of MBA www.sanjivanimba.org.in
- 2. www.sanjivanimba.org.in 302-DECISION SCIENCE Unit No.3. Decision Theory 3.10 Case 5 Decision Theory Presented By: Dr. V. M. Tidake Ph. D (Financial Management), MBA(FM), MBA(HRM) BE(Chem) Dean EDP & Associate Professor MBA 2 Sanjivani College of Engineering, Kopargaon Department of MBA www.sanjivanimba.org.in
- 3. www.sanjivanimba.org.in DECISION THEORY At the End of the Session Student will be able to understand- A. Case 5: Decision Theory
- 4. www.sanjivanimba.org.in Case 5: Decision Theory A Major consumer goods manufacturer, wishes to decide which of the two new products to bring out in the market and what level of advertising to use. The profit tables for these products are as follows (Profits are in Rs. 10,000) The Probability Distribution of demand are- a. Which Product and Advertising Level would you recommend? b. What is the expected value of perfect information for each product? Ozone Life Demand A1 Low Ad A2 Med. Ad. A3 High Ad. A1 Low Ad. A2 Med. Ad A3 High Ad. S1 High 140 160 200 200 210 230 S2 Average 100 130 160 160 170 190 S3 Low 80 120 140 120 130 140 Si Ozone P(Si) Life P(Si) S1 0.4 0.2 S2 0.5 0.2 S3 0.1 0.6
- 5. www.sanjivanimba.org.in Case 4: Decision Theory Let, N0- State that the demand is 0 N1- State that the demand is 1 N2- State that the demand is 2 N3- State that the demand is 3 And, S0- Strategy of Stocking 0 Units S1- Strategy of Stocking 1 Units S2- Strategy of Stocking 2 Units S3- Strategy of Stocking 3 Units
- 6. www.sanjivanimba.org.in Case 4: Decision Theory STRATEGIES STATES OF NATURE/DEMAND N0 N1 N2 N3 S0 S1 S2 S3
- 7. www.sanjivanimba.org.in Case 4: Decision Theory STRATEGIES STATES OF NATURE/DEMAND N0 N1 N2 N3 S0 0 80 160 240 S1 30 0 80 160 S2 60 30 0 80 S3 90 60 30 0
- 8. www.sanjivanimba.org.in Case 4: Decision Theory STRATEGIES STATES OF NATURE/DEMAND N0 N1 N2 N3 S0 0 -80 -160 -240 S1 -30 0 -80 -160 S2 -60 -30 0 -80 S3 -90 -60 -30 0
- 9. www.sanjivanimba.org.in Case 4: Decision Theory a. Maximin Gain Criteria: STRATEGIES STATES OF NATURE/DEMAND N0 N1 N2 N3 Min. S0 0 -80 -160 -240 -240 S1 -30 0 -80 -160 -160 S2 -60 -30 0 -80 -80 (Maximin) S3 -90 -60 -30 0 -90
- 10. www.sanjivanimba.org.in Case 4: Decision Theory b. Maximax Gain Criteria: STRATEGIES STATES OF NATURE/DEMAND N0 N1 N2 N3 Max S0 0 -80 -160 -240 0 (Maximax) S1 -30 0 -80 -160 0 (Maximax) S2 -60 -30 0 -80 0 (Maximax) S3 -90 -60 -30 0 0 (Maximax)
- 11. www.sanjivanimba.org.in Case 4: Decision Theory c. Laplace Criteria: STRATEGIES STATES OF NATURE/DEMAND N0 N1 N2 N3 Average Profit S0 0 -80 -160 -240 -160 S1 -30 0 -80 -160 -90 S2 -60 -30 0 -80 -56.67 (Max) S3 -90 -60 -30 0 -60
- 12. www.sanjivanimba.org.in Case 4: Decision Theory d. Hurwicz Criteria: STRATEGIES STATES OF NATURE/DEMAND N0 N1 N2 N3 Expected Profit S0 0 -80 -160 -240 -96 S1 -30 0 -80 -160 -64 S2 -60 -30 0 -80 -32 (Max) S3 -90 -60 -30 0 -36
- 13. www.sanjivanimba.org.in Case 4: Decision Theory e. Minimax Regret Criteria: STRATEGIES STATES OF NATURE/DEMAND N0 N1 N2 N3 Expected Profit S0 0 80 160 240 240 S1 30 0 80 160 160 S2 60 30 0 80 80 (Minimax) S3 90 60 30 0 90
- 14. www.sanjivanimba.org.in Case 4: Decision Theory EMV Criteria: STRATEGIES STATES OF NATURE/DEMAND N0 0.1 N1 0.3 N2 0.4 N3 0.2 EMV S0 0 -80 -160 -240 -136 S1 -30 0 -80 -160 -67 S2 -60 -30 0 -80 -31 (Max) S3 -90 -60 -30 0 -39
- 15. www.sanjivanimba.org.in EXERCISE State and Explain Case 4: Decision Theory.
- 16. www.sanjivanimba.org.in For More Details Contact Dr. V M Tidake tidkevishal@gmail.com tidkevishalmba@sanjivani.org.in