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School

Florida Atlantic University
Department

Quantitative Methods in Bus

Course Code

QMB 3600

Professor

Evan Jaffe

Lecture

9

LOW

MED

HIGH

Prob:

0.3

0.5

0.2

SUMPRODUCT

A

120,000

255,000

390,000

241500

B

130,000

295,000

460,000

278500

EV

w/o PI

C

100,000

300,000

480,000

276000

Optimistic (maxi-max): best possible outcome w/ best payoff. Pick biggest value in table.

Conservative (maxi-min)-guaranteed min possible payout. Pick biggest value in smallest column.

Mini max- must build regret table

Regret

Table

LOW

MED

HIGH

0.3

0.2

0.5

max regret

A

130-120=10

300-255=45

480-360=120

90

B

130-130=0

300-295=5

480-460=20

20

mini-max

C

130-100=30

300-300=0

480-480=0

30

Regression:

Variable being predicted, the dependent variable, is the y

Variable being used to predict, the independent variable, is the x

Multiple R- coefficient of correlation: always b/t -1 and +1. Must check sign of slope to see if positive or negative.

What is min expect opp. Loss? -> EV of PI

to max. profits? <- EV w/o PI

Highest val you’d pay for reliable forecast?-> EV of PI

Max Expect payoff? -> EV w/o P

EV of PI= (EV w/PI)- (EV w/o PI)

EV w/PI=(highest val) x prob per situation w/best payoff

Efficiency of SI= (EV of SI/EV of PI) x 100

<- Take lowest regret

Dependent=yint + slope (independent variable)

Dependent=yint +slope(interest rate) +slope (ind. Variable)

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