Homework SourseAn investor has 1000000 to invest All the money must be plac
An investor has $1,000,000 to invest. All the money must be placed in one of three investments: gold, stocks, or bonds. If $1,000,000 is placed in an investment, the value of the investment one year from now depends on the state of the economy as shown below.
State of Economy
Investment
Bad
Fair
Good
Bonds
$1,140,000
$1,150,000
$1,160,000
Stocks
$1,100,000
$1,160,000
$1,220,000
Gold
$1,180,000
$1,140,000
$1,120,000
a) What is the maximax decision?
b) What is the maximin decision?
c) What is the equally likely decision?
d) What is the Hurwicz (criterion of realism) decision with = 0.8?
e) Develop a regret table for this decision. What is the minimax regret decision?
f) What is the Helgason (normal distribution) decision?
| State of Economy | |||
| Investment | Bad | Fair | Good |
| Bonds | $1,140,000 | $1,150,000 | $1,160,000 |
| Stocks | $1,100,000 | $1,160,000 | $1,220,000 |
| Gold | $1,180,000 | $1,140,000 | $1,120,000 |
Solution
