Question

The Faculties of Arts, Business and Science have each proposed new professional graduate

programs that they have asked the University to fund. If successful, the programs will be self-

financing and not be a drain on university finances. Each program has been asked to develop 3

scenarios, pessimistic, most likely and optimistic, and to estimate the net cost or benefit to the

university in each situation. Pessimistic is defined as low demand with 25% chance of

occurrence. Most likely is a level of demand that has a 50% chance of occurrence. And

Optimistic is high demand that has a 25% chance of occurring. Costs/benefits are summarized

below. The University Budget Committee has indicated that it can only support one new

program for the coming year.

Program	Pessimistic 25%	Most Likely 50%	Optimistic 25%
Master of Policy Planning and Evaluation	-$120,000	$0	$100,000
Master of Biotechnology	-$300,000	$30,000	$250,000
Master of Data Science for Business	-$220,000	$50,000	$150,000

a)

If the Budget Committee uses the maximin criterion to make decisions, which program would

they support?

b)

Construct a regret table and identify the best decision if they were to use the minimax regret

criterion.

c)

What would be the best decision if they used maximum expected monetary value to make their

decision?

d)

If the university had perfect knowledge of whether the outcome would be pessimistic, most

likely, or optimistic, what would be the expected value with this perfect information? What is

the expected value of perfect information, EVPI

Answer 1