Brenda Kelley runs a specialty ski clothing shop outside of Boone, North Carolin
ID: 2350022 • Letter: B
Question
Brenda Kelley runs a specialty ski clothing shop outside of Boone, North Carolina.She must place her order for ski parkas well in advance of ski season because the
manufacturer produces them in the summer months. Brenda needs to determine
whether to place a large, medium, or small order for parkas. The number sold will
depend largely on whether the area receives a heavy, normal, or light amount of
snow during the ski season. The following table summarizes the payoffs Brenda ex-
pects to receive under each scenario.
Amount of Snow
Size of Order Heavy Normal Light
Large 10 7 3
Medium 8 8 6
Small 4 4 4
Payoffs (in $1,000s)
Brenda estimates the probability of heavy, normal, and light snowfalls as 0.25, 0.6,
and 0.15, respectively.
a. What decision should be made according to the maximax decision rule?
b. What decision should be made according to the maximin decision rule?
c. What decision should be made according to the minimax regret decision
rule?
d. What decision should be made according to the EMV decision rule?
e. What decision should be made according to the EOL decision rule?
Explanation / Answer
Brenda Kelley runs a specialty ski clothing shop outside of Boone, North Carolina.
She must place her order for ski parkas well in advance of ski season because the
manufacturer produces them in the summer months. Brenda needs to determine
whether to place a large, medium, or small order for parkas. The number sold will
depend largely on whether the area receives a heavy, normal, or light amount of
snow during the ski season. The following table summarizes the payoffs Brenda ex-
pects to receive under each scenario.
Amount of Snow
Size of Order Heavy Normal Light
Large 10 7 3
Medium 8 8 6
Small 4 4 4
Payoffs (in $1,000s)
Brenda estimates the probability of heavy, normal, and light snowfalls as 0.25, 0.6,
and 0.15, respectively.
a. What decision should be made according to the maximax decision rule?
b. What decision should be made according to the maximin decision rule?
c. What decision should be made according to the minimax regret decision
rule?
d. What decision should be made according to the EMV decision rule?
e. What decision should be made according to the EOL decision rule?