CASE 3: DECISION THEORY

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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

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302-DECISION SCIENCE
Unit No.3. Decision Theory
3.8 Case 3 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

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DECISION THEORY
 At the End of the Session Student will be able to
understand-
A. Case 3: Decision Theory

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Case 3: Decision Theory
A bakery owner has to buy 100 units of Cakes A or B from
the producer at the beginning of the week. The Cake A
Costs him Rs. 5 which he sells at Rs. 9 per unit. Similarly,
cake B Costs him Rs. 4 per unit which he sells at Rs. 7. The
expected demands per week for these cakes could be 80,
90, 100 or 110 units. Any quantity of cakes remaining at
the end of the week is collected back by the producer for
Rs. 2 per unit. Identify which of the cakes A or B should
the Bakery owner buy using- a) Maximin Criteria, b)
Maximax Criteria, c) Hurwicz Criteria when the bakery
owner is 80% optimum about the likely demand, d)
Laplace Criteria and e) Minimax Regret Criteria.

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Case 3: Decision Theory
Let,
N1- State that the demand is 80
N2- State that the demand is 90
N3- State that the demand is 100
N4- State that the demand is 110
And,
S1- Strategy of Buying cake A
S2- Strategy of Buying cake B

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Case 3: Decision Theory
STRATEGIES STATES OF NATURE/DEMAND
N1 N2 N3 N4
S1 (Buy A) 720-
500+40
= 260
S2 (Buy B)

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Case 3: Decision Theory
STRATEGIES STATES OF NATURE/DEMAND
N1
(80)
N2
(90)
N3
(100)
N4
(110)
S1 (Buy A) 260 330 400 400
S2 (Buy B) 200 250 300 300

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Case 3: Decision Theory
a. Maximin Gain Criteria:
STRATEGIES
STATES OF NATURE/DEMAND
N1 N2 N3 N4 Min
S1 (Buy A) 260 330 400 400 260 (Maximin)
S2 (Buy B) 200 250 300 300 200

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Case 3: Decision Theory
b. Maximax Gain Criteria:
STRATEGIES
STATES OF NATURE/DEMAND
N1 N2 N3 N4 Max
S1 (Buy A) 260 330 400 400 400 (Maximax)
S2 (Buy B) 200 250 300 300 300

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Case 3: Decision Theory
c. Hurwicz Alpha Criteria:
STRATEGIES
STATES OF NATURE/DEMAND Max
M
Min
m
Expected
ValueN1 N2 N3 N4
S1 (Buy A) 260 330 400 400 400 260 372 (Max)
S2 (Buy B) 200 250 300 300 300 200 280

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Case 3: Decision Theory
d. Laplace Criteria:
STRATEGIES
STATES OF NATURE/DEMAND
N1 N2 N3 N4 Average
S1 (Buy A) 260 330 400 400 347.5 (Max)
S2 (Buy B) 200 250 300 300 262.5

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Case 3: Decision Theory
e. Minimax Regret Criteria:
STRATEGIES
STATES OF NATURE/DEMAND
N1 N2 N3 N4 Max.
S1 (Buy A) 00 00 00 00 0 (Minimax)
S2 (Buy B) 60 80 100 100 100

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EXERCISE
 State and Explain Case 3: Decision Theory.

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For More Details Contact
Dr. V M Tidake
tidkevishal@gmail.com
tidkevishalmba@sanjivani.org.in

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Thank You