17 Jul Determine the best strategy by using Expected Opportunity Loss (EOL) approach.
During recessions, of course, consumers set stricter priorities and reduce their spending. As sales start to drop, businesses typically cut costs, reduce prices, and postpone new investments. Marketing expenditures in areas from communications to research are often slashed across the board but such indiscriminate cost cutting is a mistake. Due to all the circumstances, a company is considering the following marketing strategies and the corresponding payoff under different economic environments as in – Table 4. Payoff table State of nature Good economic environment Poor economic environment Strategy P $200,000 -$150,000 Strategy Q $100,000 -$80,000 Strategy R $80,000 -$20,000 Strategy S $50,000 $30,000 Probability 0.75 0.25 (a) Determine the best strategy by using the following criterion:
(i) Maximin
(ii) Maximax
(iii) Hurwicz criterion, with the coefficient of optimism, = 0.35 (5 marks)
(iv) Expected Value (EV)
(b) Construct the Opportunity Loss table.
(c) Determine the best strategy by using Expected Opportunity Loss (EOL) approach.
(d) Find the Expected Value of Perfect Information (EVPI).
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