Question

Using the Laplace method, which decision alternative will you chose?
a) Sell company
b) Form joint venture
c) Sell software on own
Success Moderate Success Failure
Sell Company 150 150 130
Form Joint Venture 320 292.00 -100
Sell Software on own 481.00 400 -250

Answer 1

Laplace assumes all states are equally likely (probability = 1/3). Compute the average payoff for each alternative:

- Sell Company: (150 + 150 + 130)/3 = 430/3 = 143.33
- Form Joint Venture: (320 + 292 + (−100))/3 = 512/3 = 170.67
- Sell Software on own: (481 + 400 + (−250))/3 = 631/3 = 210.33

Highest average payoff is 210.33, so by the Laplace criterion you should choose: Sell software on own.