University of Tunis Fall 2023

Tunis Business School

Decision & Game Theory

Question 1
You would like to select your spouse. You have a number of good candidates.
1. Set your selection criteria
2. How you evaluate each candidate with respect to the various criteria
3. Build a system combining the different criteria so that you may make a good choice.
4. Insert values/scores for the different candidates and show how you make your choice
5. Try to discuss the strengths and weaknesses of your system
6. What could be a legitimate objective?

Question 2
Silicon Dynamics has developed a new computer chip that will enable it to begin producing and
marketing a personal computer if it so desires. Alternatively, it can sell the rights to the computer chip
for $15 million. If the company chooses to build computers, the profitability of the venture depends
upon the company’s ability to market the computer during the first year. It has sufficient access to
retail outlets that it can guarantee sales of 10,000 computers. On the other hand, if this computer
catches on, the company can sell 100,000 computers. For analysis purposes, these two levels of sales
are taken to be the two possible outcomes of marketing the computer, but it is unclear what their prior
probabilities are. If the decision is to go ahead with producing and marketing the computer, the
company will produce as many chips as needed.
The cost of setting up the assembly line is $6 million. The difference between the selling price and the
variable cost of each computer is $600.
1. Develop a decision analysis formulation of this problem by identifying the decision
alternatives, the states of nature, and the payoff table.
2. Develop the corresponding decision tree.

Question 3
At the start of each week, a vendor should decide on the quantity to order of a perishable product. The
weekly demand of this product takes one of the following levels: 15, 16, 17, or 18. Each unit is
purchased at 10TD and sold at 12TD. At the end of the week, the remaining quantity is salvaged at
2TD per unit. The vendor incurs a cost of 4 TD for each unmet unit.
1. Construct the payoff table
2. In each of the following cases, derive the optimal decision:
a. Optimistic decision-maker.
b. Pessimistic decision-maker.
c. Rational decision-maker.
d. Moderate decision-maker with a Hurwicz optimism index of 0.4.
e. A decision-maker using Savage criterion.

Question 4
In order to push students to select majors according to their own skills, TBS organized 5 exams that
are to be taken at the same time on business analytics (BA), information technology (IT), finance
(FIN), marketing (MKG), and accounting (ACC). Hafedh is undecided which exam to take. His
concern is to warrant the highest possible grade. However, his performance depends on his conditions

1
 during the exam time and the complexity of the exam. He made the following judgment of his
expected grade.

State of nature Good day/easy exam Bad day/easy exam Good day/tough exam Bad day/tough exam
Area
BA 80 60 70 35
IT 88 55 75 0
FIN 90 50 60 30
MKG 95 70 70 55
ACC 100 60 40 20

1. What should he take if he is extremely optimistic?

Question 5
Consider the following decision profit table, where x is a real number.
E1 E2
A1 x 3
A2 3 2
A3 5 1
Find which decision will be taken as a function of x according to :
1. Pessimistic approach.
2. Hurwicz criterion for an optimism index 0.5