TECHNOLOGICAL UNIVERSITY OF THE PHILIPPINES
Ayala Boulevard, Ermita, Manila, 1000 Metro Manila
College of Science
nd
2 Semester School Year 2021-2022
Group Activity No. 1
Decision Theory
General Instructions:
1.
2.
3.
4.
This activity is worth 30 points.
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Choose only one of the two problems and show your complete step-by-step solution. Label the final
answers.
1. Lovely Apparel must decide how many sets of assorted summer wear to order for its three stores.
Information on pricing, sales, and inventory costs has led to the following payoff table, in thousands.
Order Size Low
1 set
12
2 sets
9
3 sets
6
a.
b.
c.
Demand
Medium
15
25
35
High
15
35
60
What decision should be made by the optimist?
What decision should be made by the conservative?
What decision should be made using minimax regret?
2. The table shows both prospective profits and losses for Lovely Apparel, depending on what decision is
made and what state of nature occurs. Use the information to determine what Lovely Apparel should do.
State of Nature
s2
Decision s1
d1
30
80
d2
100
30
d3
-80
-10
d4
20
20
a.
b.
c.
s3
-30
-40
120
20
if an optimistic strategy is used.
if a conservative strategy is used.
if minimax regret is the strategy.
Submitted by: Pepito, Kevin, Edaño
Bermundo, Lyka Jholly, Largado
Program: BSIT
Student Number: TUPM -20-1627
TUPM-20-1790
Answer:
1. Lovely Apparel must decide how many sets of assorted summer wear to order for its three stores.
Information on pricing, sales, and inventory costs has led to the following payoff table, in thousands.
a. What decision should be made by the optimist?
Demand
Order size
Low
Medium
High
Best
1 set
12
15
15
15
2 set
9
25
35
35
3 set
6
35
60
60
The decision that lovely apparel made by
using optimist strategy is the 3 set under
low demand
b. What decision should be made by the conservative?
Demand
Order size
Low
Medium
High
Minimum
1 set
12
15
15
12
2 set
9
25
35
9
3 set
6
35
60
6
The decision that lovely apparel made by
using Conservative strategy is the 3 set
under high demand
c. What decision should be made using minimax regret?
Demand
Order size
Low
Medium
High
1 set
12 – 6 = 6
15 – 15 = 0
15 – 15 = 0
2 set
9–6=3
25 – 15 =10
35 – 15 = 20
3 set
6–6=0
35 – 15 = 20
60 – 15 = 45
Regret Table
Demand
Order size
Low
Medium
High
Maximum
1 set
6
0
0
6
2 set
3
10
20
20
3 set
0
20
45
45
The decision that lovely apparel made by
using Minimax Regret strategy is the 1 set
under low demand
2. The table shows both prospective profits and losses for Lovely Apparel, depending on what decision is
made and what state of nature occurs. Use the information to determine what Lovely Apparel should do.
a.
if an optimistic strategy is used.
State of Nature
Decision
S1
S2
S3
Best
D1
30
80
-30
80
D2
100
30
-40
100
D3
-80
-10
120
120
D4
20
20
20
20
b.
Using the optimist strategy lovely
apparel should do the Decision 3 (D3)
if a conservative strategy is used.
State of Nature
c.
Decision
S1
S2
S3
Minimum
D1
30
80
-30
-30
D2
100
30
-40
-40
D3
-80
-10
120
-80
D4
20
20
20
20
Using the conservative strategy lovely
apparel should do the Decision 3 (D3)
if minimax regret is the strategy.
State of Nature
Decision
S1
S2
S3
D1
30 – (-80) = 120
80 – (-10) = 90
-30 – (-40) = 10
D2
100 – (-80) = 180
30 – (-10) = 40
-40 – (-40) = 0
D3
-80 – (-80) = 0
-10 – (-10) = 0
120 – (-40) = 160
D4
20 – (- 80) = 100
20 – (-10) = 30
20 – (-40) = 60
Regret Table
State of Nature
Decision
S1
S2
S3
Maximum
D1
120
90
10
120
D2
180
40
0
180
D3
0
0
160
160
D4
100
30
60
100
Using the minimax regret strategy lovely
apparel should do the Decision 4 (D4)