A former White House aide, who is now the owner of a Washington lobbying firm, i

Question

A former White House aide, who is now the owner of a Washington lobbying firm, is trying to decide whether to hire one, two, or three assistant lobbyists. He estimates that profits next year (in thousands of dollars) will vary with demand for his lobbying services as follows: If he uses the maximax criterion, how many assistants will he decide to hire? Question 7 options: either one or two either two or three three One If he uses the Laplace criterion, how many assistants will he decide to hire? Question 8 options: three one either two or three two either one or two

Explanation / Answer

7) In maxi max criteria, max pay off if he hires

1 - 100

2 - 100

3 - 300

So he should hire 3

8)

Expected value approach, (Assume high, low, medium have equal probability)

EV (1) = 1/3(50+75+100) = 75

EV(2) = 1/3(0+100+100) = 200/3 = 66.7

EV(3) = 1/3(-100+70+100) = 23.3

So he should hire 1 person

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