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Regret Table Success Moderate Success Failure

Probability 0.3 0.3 0.4
Sell Company 111 50 0
Form Joint Venture 210 0 103
Sell Software on own 0 195 100

Calculate the EOL decision for: Sell software on own

1 answer

To calculate the Expected Opportunity Loss (EOL) for the decision to "Sell Software on Own," we first need to calculate the regret values for this specific decision under each outcome (Success, Moderate Success, and Failure).

Regret Table:

  • Values for each outcome when selling software on one's own are:
    • Success: 0
    • Moderate Success: 195
    • Failure: 100

Now, let's analyze the regrets for each option.

  1. Sell Company:

    • Success Regret: 111 - 0 = 111
    • Moderate Success Regret: 50 - 195 = -145 (we will use 0 since we only take non-negative regrets for EOL calculations)
    • Failure Regret: 0 - 100 = 100

  2. Form Joint Venture:

    • Success Regret: 210 - 0 = 210
    • Moderate Success Regret: 0 - 195 = -195 (considered as 0)
    • Failure Regret: 103 - 100 = 3

Now, we summarize the regret values:

  • Sell Company:

    • Success Regret: 111
    • Moderate Success Regret: 0 (use non-negative)
    • Failure Regret: 100

  • Form Joint Venture:

    • Success Regret: 210
    • Moderate Success Regret: 0
    • Failure Regret: 3

Next, we construct a new regret matrix based on the above calculations:

| Outcome | Sell Company | Form Joint Venture | Sell Software on Own | |-------------------|--------------|--------------------|----------------------| | Success | 111 | 210 | 0 | | Moderate Success | 0 | 0 | 195 | | Failure | 100 | 3 | 100 |

EOL Calculation:

Now we calculate the Expected Opportunity Loss for the decision to "Sell Software on Own."

EOL Calculation Formula: \[ \text{EOL} = P(Success) \times \text{Regret}{Success} + P(Moderate Success) \times \text{Regret}{Moderate Success} + P(Failure) \times \text{Regret}_{Failure} \]

Given probabilities:

  • \( P(Success) = 0.3 \)
  • \( P(Moderate Success) = 0.3 \)
  • \( P(Failure) = 0.4 \)

Regrets for "Sell Software on Own":

  • Regret when Success: \( 0 \)
  • Regret when Moderate Success: \( 195 \)
  • Regret when Failure: \( 100 \)

Putting values into the EOL formula: \[ \text{EOL} = (0.3 \times 0) + (0.3 \times 195) + (0.4 \times 100) \]

Calculating each term:

  • \( 0.3 \times 0 = 0 \)
  • \( 0.3 \times 195 = 58.5 \)
  • \( 0.4 \times 100 = 40 \)

Now, we add them up: \[ \text{EOL} = 0 + 58.5 + 40 = 98.5 \] Thus, the Expected Opportunity Loss (EOL) for the decision to "Sell Software on Own" is 98.5.