S67532:Non-Life Statistics Practical 1 Decision Theory

Answer 1

Team A
Loss for Team A
Strategy I Strategy II Probability
Strategy 1 0.5 -0.1 x1
Team B Strategy 2 -0.3 0.2 x2
Probability y1 y2 1

i) y 1= 0.272727273

For y1 look into y2 and do x2-x1

For y2 look into y1 and do x1-x2

y2 0.727272727

ii) x1 0.454545455

x2 0.545454545

iii) Value of the game 0.063636364

Answer
i) y1 0.272727273
ii) x1 0.454545455
iii) Expected loss of team A (Value of the game) 0.06363636

Answer 2

i) A game with 2 players where whatever one player loses in the game the other
player wins, and vice versa.
ii) Sally Probability
Value to Sally
10 40
10 20 -50 p
Fioana
40 -50 80 1-p
p 0.65
The strategy is optimal for Sally because it produces the same expected payoff
regardless of what Fiona does. Under any other randomized strategy, Fiona can
adopt a strategy that minimizes Sally's expected payoff.

Value of the
iii) -4.5
game
S67532:Non-Life Statistics Decision Theory

Answer 3

i) d1 To sign the AMC

d2 Not to sign the AMC

Number of faults
Decision
0 1 2 3 4 5
d1 1000 1000 1000 1000 1000 1000
d2 0 300 600 900 1200 1500
Probability 0 0.1 0.2 0.3 0.2 0.1

ii) Maximum Loss iii) Expected Loss

d1 1000 (Min) d1 900
d2 1500 d2 810 (Min)
Minimax Decision to choose d1 Bayes decision to choose d2

Answer 4

(i) Annual Profit in 000's

To Manufacture
Scenario Sales Probability Basic Deluxe Supreme
Low 1470 0.25 70 64 -95
Medium 2100 0.6 700 820 850
High 2415 0.15 1015 1198 1322.5

Minimum Profit 70 64 -95

Expected Profit 589.75 687.7 684.625

(ii) Maximin Solution 70 To Manufacture Basic Product

(iii) Baye's criterion solution 687.7 To Manufacture Deluxe Product

S67532:Non-Life Statistics Decision Theory

Ans 5
D1 D2 D3 D4 Probability
θ1 10 3 -7 9 0.5
θ2 -5 12 6 -7 0.3
θ3 -8 -3 13 -10 0.2

(i) D4 is dominated by D1

(ii) Decision D1 D2 D3
Min Profit -8 -3 -7

Optimum decision using Maximin criteria -3 To choose D2

(iii) Decision D1 D2 D3
Expected Profit 1.9 4.5 0.9

Optimum decision under Bayes criteria 4.5 To choose D2

Ans 6
Let θi denote the state of the nature when the roll of die is i

(i) Andy's Payoff Matrix

θi a1 a2 a3 Probability
1 1.5 0.5 2 0.25
2 3 4 2 0.25
3 4.5 1.5 6 0.25
4 6 8 4 0.25

(ii) None of the decision function are dominated

(iii) Strategy a1 a2 a3
Expected Profit 3.75 3.5 3.5

Andy's optimal strategy under the Bayes criterion 3.75 To choose a1

S67532:Non-Life Statistics Decision Theory

Ans 7
Player A
I II III IV
I 2 1 4 3
II 7 4 3 2
Player B
III 1 -1 8 6
IV -1 -5 9 4
V 8 6 -1 -3

We find that is no saddle point in the above data so we go for dominance check now.

Player A
I II III IV
I 2 1 4 3
II 7 4 3 2
Player B

III 1 -1 8 6
IV -1 -5 9 4
V 8 6 -1 -3

We find that element in column I > corresponding element in coloumn II, so delete coloumn I

Again coloumn III > coloumn IV, so delete Coloumn III

Player A
II IV
I 1 3
II 4 2
Player B

III -1 6
IV -5 4
V 6 -3

We find that III greater than Row IV, so we delete IV

Player A
II IV
I 1 3
Player B

II 4 2
III -1 6
V 6 -3
Prob. x1 1-x1
S67532:Non-Life Statistics Decision Theory

x1 V
0 3 Equation to plot the graph of
0 2 value of the game (V) against
0 6 probabilty X1
0 -3 BI = X1 + 3(1-X1) ≤V
1 1 BII = 4X1 + 2(1-X1) ≤ V
1 4 BIII = -X1 + 6(1-X1) ≤ V
1 -1 BIV = 6X1 - 3(1-X1) ≤ V
1 6

4
Value of Game V

3
B1
2
B2
1
B3
0 B4
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
-1

-2

-3

-4
Probabilty Values X1

In the above graph, feasibility region is the common region for all the lines.
The bottom point of the region (I.e intersection of line 2 & 3) corresponds to optimum solution.
Lines BI and Biv will be discarden or remove as they are isolated.

Player A Optimum Values

II IV Prob. x1 4/9
II 4 2 y1 1-x1 5/9
Player B

IV -1 6 1-y1 y1 7/9
Prob. x1 1-x1 1-y1 2/9
V 2.888889
Therefore,
Optimum Strategy for player A : (0,4/9,0,5/9)
Optimum Strategy for player B : (0,7/9,2/9,0,0)
Expected value of the cost to player A is V 2.888889