Originally Posted by

**jwells1999** Im not sure if this is right but I was wondiering if someone who knew a little more about quantitive methods could help me figure this out tell me if its right or wrong. Its a Decision Analysis problem.

Thanks

Dollar Department Stores has the opportunity of acquiring either 3, 5, or 10 leases from the bankrupt Granite Variety Store chain. Dollar estimates the profit potential of the leases depends on the state of the economy over the next five years. There are four possible states of the economy as modeled by Dollar Department Stores, and its president estimates P(s1) = .4, P(s2) = .3, P(s3) = .1, and P(s4) = .2. The utility has also been estimated. Given the payoffs (in $1,000,000's) and utility values below, which decision should Dollar make using expected utility as its decision criterion?

Payoff Table

State Of The Economy

Over The Next 5 Years

Decision s1 s2 s3 s4

_________________________

d1 -- buy 10 leases | 10 | 5 | 0 | -20 |

d2 -- buy 5 leases | 5 | 0 | -1 | -10 |

d3 -- buy 3 leases | 2 | 1 | 0 | - 1 |

d4 -- do not buy | 0 | 0 | 0 | 0 |

Utility Table

Payoff (in millions)------ +10 +5 +2 +1 0 -1 -10 -20

Utility -------------- +10 +5 +2 +1 0 -1 -20 -50

MY ANSWER---

D1=10(.4)+5(.3)+(0(.1)+-20(.2)=1.5

D2=5(.4)+0(.3)+-1(.1)+-10(.2)=-.1

D3=2(.4)+1(.3)+0(.1)+-1(.2)=.9

D4=0

Dollar should pick d2