How to Build and Solve a Payoff Matrix: Decision Analysis Example 1 - Decision Theory
This example will solve a problem using a payoff matrix or decision matrix under conditions of risk, taking into account strategies when supply and demand are not equal.
Note: At 14:33, in the calculation of the 150 alternative, the result would be:
EMV 150 = 750*0.2 + 1050*0.25 + 1200*0.32 + 1350*0.23 = 1107.
This calculation does not alter the optimal solution.
I've attached the problem statement in case you'd like a detailed explanation:
"The 'La Deliciosa' bakery makes several cupcakes daily to meet birthday demand. Each cupcake sells for 15 monetary units (MU), and the cost is 10 MU. Half of the unsold cupcakes are donated to the nearest daycare center without compensation, while the other half are sold for 9 MU. Construct the decision matrix if, on a given day, orders can be placed for 150, 250, 300, or 350 units, but the specific number of batches to be ordered is unknown at the time of production. It is also known that for each unavailable unit, the order can be fulfilled at the last minute at a cost of 12 MU. The demand for cupcakes follows the distribution below:
150 with a probability of 0.20
250 with a probability of 0.25 Probability
300 with 0.32 Probability
350 with 0.23 Probability
I invite you to leave your questions in the comments and suggest exercises for future videos.
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I'm also including some links to videos related to decision theory:
Expected Monetary Value (EMV) Decision Analysis
• Valor Monetario Esperado (VME) (EMV) Análi...
Decision Theory: Expected Value of Perfect Information (EVI) in the Payoff Matrix
• Teoría de las Decisiones: Valor esperado d...
DECISION THEORY
Tutorial Break-even point in QM for Windows
• Tutorial Punto de equilibrio en QM for WIN...
Tutorial for solving a payoff matrix/decision table with QM for Windows
• Tutorial para Resolver una Matriz de Pagos...
Simple introduction to payoff matrices and decision tables
• Introducción Sencilla a Matriz de Pagos, T...
Tutorial: Creating a decision tree in QM for Windows WINDOWS
• TUTORIAL PLANTEAR UN ARBOL DE DECISION EN ...
Until next time!