Question

Regret Table Success Moderate Success Failure
Probability 0.3 0.3 0.4
Sell Company 78 50 0
Form Joint Venture 210 0 69
Sell Software on own 0 236 100

Calculate the EOL decision for: Form Joint Venture

Answer 1

To calculate the Expected Opportunity Loss (EOL) for the decision to "Form Joint Venture," we first need to compute the Expected Monetary Value (EMV) for each outcome, and then compute the Opportunity Loss for each outcome.

### Step 1: Calculate the EMV for each decision

1. **EMV for Success**
- Probability = 0.3
- Outcome = 210
- EMV = Probability × Outcome = 0.3 × 210 = 63

2. **EMV for Moderate Success**
- Probability = 0.3
- Outcome = 0
- EMV = 0.3 × 0 = 0

3. **EMV for Failure**
- Probability = 0.4
- Outcome = 69
- EMV = 0.4 × 69 = 27.6

### Step 2: Calculate the Total EMV for "Form Joint Venture"

Total EMV (Form Joint Venture) = EMV (Success) + EMV (Moderate Success) + EMV (Failure)
\[
\text{Total EMV (Form Joint Venture)} = 63 + 0 + 27.6 = 90.6
\]

### Step 3: Determine the Best Outcome for Each State of Nature

- **Success**: The maximum outcome is 210 (Form Joint Venture).
- **Moderate Success**: The maximum outcome is 236 (Sell Software on own).
- **Failure**: The maximum outcome is 100 (Sell Software on own).

### Step 4: Calculate Opportunity Loss for each outcome of "Form Joint Venture"

1. **Opportunity Loss for Success**:
- Best Outcome = 210
- Loss = Maximum Outcome - Outcome = 210 - 210 = 0

2. **Opportunity Loss for Moderate Success**:
- Best Outcome = 236
- Loss = 236 - 0 = 236

3. **Opportunity Loss for Failure**:
- Best Outcome = 100
- Loss = 100 - 69 = 31

### Step 5: Calculate the Expected Opportunity Loss (EOL)

Now we calculate the EOL by multiplying the opportunity losses by their respective probabilities:

\[
\text{EOL} = (0 \times 0.3) + (236 \times 0.3) + (31 \times 0.4)
\]
\[
\text{EOL} = 0 + 70.8 + 12.4 = 83.2
\]

### Conclusion

The Expected Opportunity Loss (EOL) for the decision to "Form Joint Venture" is **83.2**.