A business owner is trying to decide whether to buy, rent, or lease office space and has constructed the following payoff table based on whether business is brisk or slow. $$\begin{array} { l | c r }
\text { Alternative } & \text { Brisk } & \text { Slow } \
\hline \text { Buy } & 90 & - 10 \
\text { Rent } & 70 & 40 \
\text { Lease } & 60 & 55
\end{array}$$ The equal likelihood criterion strategy is
A) Buy.
B) Rent.
C) Lease.
D) Brisk.

Question

A business owner is trying to decide whether to buy, rent, or lease office space and has constructed the following payoff table based on whether business is brisk or slow. $$\begin{array} { l | c r } 
\text { Alternative } & \text { Brisk } & \text { Slow } \
\hline \text { Buy } & 90 & - 10 \
\text { Rent } & 70 & 40 \
\text { Lease } & 60 & 55
\end{array}$$ The equal likelihood criterion strategy is
A) Buy.
B) Rent.
C) Lease.
D) Brisk.

Quizplus · Accepted Answer

The equal likelihood criterion (also known as the Laplace criterion) suggests that each state of nature is equally likely. Therefore, we calculate the average payoff for each alternative. For "Buy," the average is (90 + (-10))/2 = 40. For "Rent," it's (70 + 40)/2 = 55. For "Lease," it's (60 + 55)/2 = 57.5. "Lease" has the highest average payoff, making it the best choice under the equal likelihood criterion.

A Business Owner Is Trying to Decide Whether to Buy