Payoff when advertising is applied for each scenario= profit increase in that scenario- cost of advertizing


Payoff table

Payoff when advertising is applied for each scenario= profit increase in that scenario- cost of advertizing

Highly successful Moderately successful Unsuccessful
Invest in advertising 225000 45000 -75000
Not invest in advertising 0 0 0

2. Expected money criteria

Expected payoff if invested in advertising= probability of highly successful* payoff of highly succesful+probability of moderately successful* payoff of moderately succesful+probability of unsuccessful* payoff of unsuccessful = 0.2*225000+0.5*45000+0.3*(-75000)=45000

The expected payoff if not invested=0

3. most likely event criterion to find the best action

Most likely event if invested is that advertizing in moderately successful and thus the payoff is 45000 and the most likely scenario if not invested in not investing is all 3 which have payoff of0. Hence we would invest in advertising.

4.

Highly successful Moderately successful Unsuccessful
Invest in advertising 225000 45000 -75000
Not invest in advertising 0 0 0
Highly successful Moderately successful Unsuccessful
The maximum payoff in each scenario 225000 45000 0
Regret=Maximum payoff-Situation payoff
Maximum payoff- situation payoff Highly successful Moderately successful Unsuccessful Maximum regret
Invest in advertising 0 0 75000 75000
Not invest in advertising 225000 45000 0 225000

As we can see minimum of maximum regret happens in Situation 1 when invested in advertising, hence we would invest in advertizing

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