Question

Which approach among the Optimistic, Conservative, and Minimax Regret approach would you like to use while you are making a business decision? Please describe the decision problem first with at least 2 decision alternatives and at least 2 states of nature.

Answer 1

I will use the optimistic approach of the decision making as this is the method in which the decision is taken on the basis of the one that facilitates us the best payoff. Thus in the optimistic approach, the business alternative that facilitates us the best payoff will be selected as the bottom line of any business decision is to obtain the best payoffs.

We can consider the business has to use either Drill press or the Lathe machines. This can be done by either buying it or on lease. the payoffs of the different alternatives are given below=

Alternatives	Buy	Lease
Drill press	10000	8000
Lathe	25000	5000

For the optimistic approach, we will first find the maximum pay off of both the options

Alternatives	Buy	Lease	Maximum
Drill press	10000	8000	8000
Lathe	25000	5000	5000

Now we will select the maximum value form the maximum column of the above table

So the selected value is 8000 belonging to Drill press on Lease this alternative must be chosen as it provides the best payoff.