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This question is from Kaplan exam kit – 1september 2014 to August 2015 the questions 78 to 81 are based upon the following information.
Shuffle is attempting to decide which size of fork lift truck to buy to use in its warehouses. There are three grades of truck the A series, B And C series the uncertainty faced is the expected growth in the on-line market it serves, which could grow at 15%,30%,or even 40% in the next period .shuffle has correctly produced the following decision table and has calculated the average contribution gained from each combination of truck and growth assumption
Types of truck
Decision table A series B Series C series
Growth 15%. 2400 1800 3600
30% 1400 1900 4500
40%. 4900 2800 3900Q78. Based on the scenario information which truck would be the pessimist buyer purchase
Q80 based upon the scenario information if the buyer was proved to regretting decision that have been made which truck would the buyer purchase
My regret table which I calculated was different compared to the answer at the back
Regret table A series B Series C series
Growth 15% 2500 1000 900
30%. 3500 900 0
40% 0 0 600The above one I calculated is it right or wrong
Q81 based upon the scenario information if the probabilities of the given growth rates are 15% 0.4, 30% 0.25 and 40% 0.35 which truck would the risk neutral buyer purchase.
I’m multiplying 0.4 with 2400 then 1800 and 3600 which when I checked at the answers at the back was wrong what am I doing wrong
Please guide and correct me
Many thanks
NoureenHi Noureen,
I just did that question this morning so,
your regret table – you are basing your regret (ie the difference between the contribution and the maximum contribution) on the column rather than the row.
For example, the first ‘choice option’ is Series A truck so, if the growth rate is 15% then the contribution earned will be $2400. The regret would be the lost contribution compared to the maximum that could be gained if a different truck had been chosen – in this case we could have earned $3600 if we chose Series C instead – so the regret is $3600-$2400 and so on.
You need to look at the row, not the column – hope that makes sense?
Q81 – risk neutral would be the EVs. So, again you need to work out for each choice option. So, for series A truck EV is (2400 x 0.4) + (1400 x 0.25) + (4900 x 0.35) = $3025.
Again, you are calculating the total EV of the row when you should be calculating the total EV of the column this time.
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