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IE 405
Problem Set #4 Solutions
Question 2.
a-
“Choose Offer 2”
1
b,c EU (W/ Info) =78.4 , EVPI = 78.4 – 78 = 0.4 Utility points = 0.4 Surfing Days or $400
Question 7.
Hire “Contractor C”
IE 405 Problem Set#4 Solutions
2
Question 8.
A is preferred to B since in both reliability and cost it gets better scores, so no matter what the
weights are, A is always preferred to B.
For product C:
If we choose 1/2 < p < 2/3 then C is preferred to A under any condition.
Ur,c (5,10) = 2/3 Ur,c (0,3) + 1/3 Ur,c (4,0) => 0.5Kr + Kc + [1-Kr-Kc]0.5 = 2/3 Kc 0.3 + 1/3 Kr 0.4
Ur,c (4,8) = 0.5 Ur,c (10,0) + 0.5 Ur,c (0,10) => 0.4 Kr + 0.8 Kc + [1 – Kr – Kc] 0.4 x 0.8 = 0.5 Kr + 0.5 Kc
(1) , (2) => Kr = 0.7 , Kc = 1.3 Kr + Kc = 2 > 1 , so these 2 attributes are complements
Decision Maker’s Utility Function: Ur,c(x,y) = 0.7 Ur(x) + 1.3 Uc(y) – Ur(x)Uc(y)
A 6 8 0.98
B 4 6 0.82
C 5.9 8.4 1