National Foods has developed a new sports beverage it would like to advertise on Super Bowl Sunday. National’s advertising agency can purchase either one, two, or three 30-second commercials advertising the drink. It estimates that the return will be based on Super Bowl viewership, which in turn, is based on fans’ perception of whether the game is “dull,” “average,” “above average,” or “exciting.”
National Foods’ ad agency has constructed the following payoff table giving its estimate of the expected profit (in $ 100,000’s) resulting from purchasing one, two, or three advertising spots. (Another possible decision is for national Foods not to advertise at all during the Super Bowl.) The states of nature correspond to the game being “dull,” “average,” “above average,” or “exciting.”
a. What is the optimal decision if the National Foods advertising manager is optimistic?
b. What is the optimal decision if the National Foods advertising manager is pessimistic?
c. What is the optimal decision if the National Foods advertising manager wishes to minimize the firm’s maximum regret?