Brenda Kelley runs a specialty ski clothing shop. She must place her order for ski parkas well in advance of ski season because the manufacturer produces them in the summer months. Brenda needs to determine whether to place a large, medium, or small order for parkas. The number sold will depend largely on whether the area receives a heavy, normal, or light amount of snow during the ski season. The following table summarized the payoffs Brenda expects to receive under each scenario. Snowfall Order Size Heavy Normal Light Large 10 7 3 Medium 8 8 6 Small 4 4 4 (payoffs in 000s) Brenda estimate the probability of heavy, normal, and light snowfall as 0.25, 0.6, and 0.15, respectively. 1. What decision should be made according to the maximax decision rule? 2. What decision should be made according to the maximin decision rule? 3. What decision should be made according to the EMV decision rule?
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