Question

Regret Table Success Moderate Success Failure
Probability 0.3 0.3 0.4
Sell Company 90 50 0
Form Joint Venture 210 0 54
Sell Software on own 0 106 100

Using the EOL method, which decision alternative will you chose?

Answer 1

Compute expected opportunity loss (EOL) for each alternative = sum(probability × regret).

Probabilities: Success 0.3, Moderate Success 0.3, Failure 0.4.

- Sell Company: 0.3(90) + 0.3(50) + 0.4(0) = 27 + 15 + 0 = 42
- Form Joint Venture: 0.3(210) + 0.3(0) + 0.4(54) = 63 + 0 + 21.6 = 84.6
- Sell Software on own: 0.3(0) + 0.3(106) + 0.4(100) = 0 + 31.8 + 40 = 71.8

Choose the alternative with the smallest EOL: Sell Company (EOL = 42).