Posted by **In Desperate Need Deena** on Saturday, September 24, 2011 at 2:14pm.

You have available five different investment strategies and their respective payoffs for various states-of-nature as shown in the chart below. Which investment would you make under the different decision criteria?

States of Nature

Sever

Decline Moderate Decline Stable Moderate Advance Strong Advance

T-Bills 3.50 3.50 3.50 3.50 3.50

Paragon (22.50) (2.00) 20.00 35.00 50.00

Luster 28.00 14.70 0.00 (10.00) (20.00)

Apex 10.00 5.00 7.00 45.00 30.00

Market (13.00) 5.00 22.00 38.00 Portfolio 47.00

Probability 0.05 0.35 0.30 0.20 0.10

Note: For the following questions, ¡§Investment¡¨ is the name of the strategy not the number, i.e., Luster, Apex, etc.

a)Maximin criteria

Answer: Investment

b)Maximax criteria

Answer:Investment

c)Equally Likely criteria

Answer:Investment

d)Criterion of realism (assume ƒÑ = 0.6)

Answer:Investment

e)Minimax regret criteria

Answer:Investment

f)Criterion of maximum expected value

Answer:Investment

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