A Manager Is Deciding Whether or Not to Build a Small

question 10

Essay

A manager is deciding whether or not to build a small facility.Demand is uncertain and can be either at a high or low level.If the manager chooses a small facility and demand is low, the payoff is $100.If the manager chooses a small facility and demand is high, the payoff is $300.On the other hand, if the manager chooses a large facility and demand is low, the payoff is -$200, but if demand is high, the payoff is $800.
(a)What would be the best decision based on the Laplace criterion?
(b)What would be the best decision based on Hurwicz's criterion of realism using α = 0.6?

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Definitions:

Variance

A measure of how much values in a data set differ from the mean of the set.

Cohen's D

Cohen's d is a statistic used to quantify the difference between two means, measured in standard deviations.

Cohen's D

A measure of effect size indicating the standardized difference between two means.

Standard Deviation Units

Units measured in terms of the number of standard deviations away from the mean of the distribution.