 Problem 2.

Criteria of Laplace, Wald or pessimistic, optimistic, Hurwicz

and Savage (Cost matrix):
A warehouse of finished products that leases its services to imports from the USA,
must plan its level of supply to satisfy the demand of its customers in the day of
love and friendship. The exact number of crates is not known but is expected to fall
into one of five categories: 610, 630, 680, 715 and 730 crates. There are therefore
four levels of supply. The deviation from the number of hoppers is expected to
result in additional costs, either due to excessive supplies or because demand
cannot be met. The table below shows the costs in hundreds of dollars (US $). For
Hurwitcz please assume an alpha of 0,65.

Event e1(610) e2(630) e3(680) e4(715) e5(730)

Alternative
e1(610) 2244 2393 2684 2833 3212

e2(630) 2201 2404 2548 3038 3142

e3(680) 2131 2403 2569 2928 3220

e4(715) 2182 2401 2530 2881 3116

e5(730) 2235 2366 2595 2905 3279

Table 2. Cost matrix 1

According to Table 2 by applying the criteria of criteria of Laplace, Wald or

pessimistic, optimistic, Hurwicz and Savage determine the optimal decision level
according to the criteria of costs.

a. Criterion of Laplace

As you do not know the probability of occurrence of each situation, imagine that
they all have the same probability. Since there are five alternatives, the probability
of each is 1/5 and then the risk criterion is applied:
 𝑛
1
𝑣𝑎𝑙𝑜𝑟 𝑒𝑠𝑝𝑒𝑟𝑎𝑑𝑜 𝐴𝑖 = { ∑ 𝑅𝑖𝑗 }
𝑛
𝑗=1

(2244 + 2393 + 2684 + 2833 + 3212)

𝑒 𝐴1 : = 2673,2
5

(2201 + 2404 + 2548 + 3038 + 3142)

𝑒 𝐴2 : = 2666,6
5

(2131 + 2403 + 2569 + 2928 + 3220)

𝑒 𝐴3 : = 2650,2
5

(2182 + 2401 + 2530 + 2881 + 3116)

𝑒 𝐴4 : = 2622
5

(2235 + 2366 + 2595 + 2905 + 3279)

𝑒 𝐴5 : = 2676
5

Event
e1(610) e2(630) e3(680) e4(715) e5(730) EV
Alternative

e1(610) 2244 2393 2684 2833 3212 2673,2

e2(630) 2201 2404 2548 3038 3142 2666,6
e3(680) 2131 2403 2569 2928 3220 2650,2
e4(715) 2182 2401 2530 2881 3116 2622
e5(730) 2235 2366 2595 2905 3279 2676
Table 2. Cost matrix 2

Therefore, the best level of supply is associated with the lowest expected cost of:
2622.

b. Wald or Pessimistic criterion

Event e1(610) e2(630) e3(680) e4(715) e5(730)

 worst
Alternative
result
e1(610) 2244 2393 2684 2833 3212 3212
e2(630) 2201 2404 2548 3038 3142 3142
e3(680) 2131 2403 2569 2928 3220 3220
e4(715) 2182 2401 2530 2881 3116 3116
e5(730) 2235 2366 2595 2905 3279 3279
Table 2. Cost matrix 3

The alternative of this value is the least of all: e4(715) 3116

c. Optimistic criterion or maximax

𝑀𝑎𝑥[max 𝐴] 𝑓𝑜𝑟 𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠

𝑀𝑖𝑛[min 𝐴] 𝑓𝑜𝑟 𝑙𝑜𝑠𝑠𝑒𝑠

Event
e1(610) e2(630) e3(680) e4(715) e5(730) best result
Alternative

e1(610) 2244 2393 2684 2833 3212 2244

e2(630) 2201 2404 2548 3038 3142 2201
e3(680) 2131 2403 2569 2928 3220 2131
e4(715) 2182 2401 2530 2881 3116 2182
e5(730) 2235 2366 2595 2905 3279 2235
Table 2. Cost matrix 4

The optimal decision level by the optimistic criterion is e3 (680) with a minimum
cost of 2131

d. Hurwicz criterion
Optimistic Hurwicz criterion – pessimistic

It is an intermediate criterion between Wald's criterion and the optimistic criterion.

For apply this decision criterion, the decision maker must define its coefficient of
optimism α between 0 and 1. Consequently, the coefficient of pessimism will be
given (1-α) α=0,65

Event e1(610) e2(630) e3(680) e4(715) e5(730) Best result Worst Expected
Alternative result value

e1(610) 2244 2393 2684 2833 3212 2244 3212 2873,2

e2(630) 2201 2404 2548 3038 3142 2201 3142 2812,65

e3(680) 2131 2403 2569 2928 3220 2131 3220 2838,85

e4(715) 2182 2401 2530 2881 3116 2182 3116 2789,1

e5(730) 2235 2366 2595 2905 3279 2235 3279 2913,6

Table 2. Cost matrix 5

The optimal decision level by the Hurwicz criterion is e4 (715) with a result of

2789,1.

e. Criteria of Savage (opportunity cost)

 Form the matrix of regrets or opportunity cost.

 Once the matrix of loss of opportunity is formed, Savage advises
choosing the strategy that corresponds to the minimum of the maximum
regrets.

Event e1(610) e2(630) e3(680) e4(715) e5(730)

Alternative
e1(610) 2244 2393 2684 2833 3212

e2(630) 2201 2404 2548 3038 3142

e3(680) 2131 2403 2569 2928 3220

e4(715) 2182 2401 2530 2881 3116

e5(730) 2235 2366 2595 2905 3279

Table 2. Cost matrix 6

opportunity cost matrix

 Event 2131 2366 2530 2833 3116
Alternative
e1(610) e2(630) e3(680) e4(715) e5(730) result

e1(610) 113 27 154 0 96 154

e2(630) 70 38 18 205 26 205

e3(680) 0 37 39 95 104 104

e4(715) 51 35 0 48 0 51

e5(730) 104 0 65 72 163 163

Table 2. Cost matrix 7

From the matrix, the largest opportunity costs are chosen by rows, and of these the
smallest, in summary, of the maximums, the minimum is chosen. Therefore,
following this criterion, the chosen value would be the alternative e4(715) since it is
51.