Jake Fearne, the manager of Garrett’s Magazines wants to launch a new cookery programme and is unsure as to where to air it. Three channels have expressed interest in the new programme:
Mainstream channel: the programme could be launched on a mainstream channel (ie: offered through BBC/Virgin/Sky etc)
Online channel: launch the programme on a television service which is only offered online (eg: Netflix, Amazon)
Social Media channel: launch the programme only on social media, eg: YouTube
The payoffs for each course of action depend on whether viewing figures are high, medium or low in the first year. The data in Figure Q1 gives the net payoffs (in £000s) for each course of action, given each state of nature.
Figure Q1
Course of Action High Viewing Figures (H) Moderate Viewing Figures (M) Low Viewing Figures (L)
Launch on a mainstream channel 600 400 -160
Launch on an online channel 500 220 120
Launch on a social media channel 180 160 140
Task 1 (100 words)
Use the data provided in Figure Q1 to calculate which course of action that should be taken when the following decision making criteria are applied to the data: Maximax, Maximin, Minimax Regret, Criterion of Realism (a = 0.7) and Equal Likelihood. Make sure you show your calculations clearly.
If Jake Fearne considers himself to have a risk-seeking attitude with regards to his decision making, which of these criterion/criteria would be most appropriate and why?
Task 2 (50 words)
Jake Fearne has now assigned probabilities to each state of nature as follows based on his knowledge current cooking programme trends.
P(H) = 0.4 P(M) = 0.35 P(L) = 0.25
He can also commission a research report (for £10,000) into potential viewing trends for the programme. The outcome of this research will be either strong, S (indicating potential good viewing figures) or weak, W (indicating potential weak viewing figures). The conditional probability of the research report being strong given each state of nature is:
P(S|H) = 0.7 P(S|M) = 0.65 P(S|L) = 0.3
Using an appropriate method and showing all steps of your calculations clearly, advise Jake Fearne on what the optimal course of action would be. Use the decision tree provided overleaf to complete your analysis.
Task 3 (150 words)
What factors should Jake Fearne consider regarding the efficiency and value of the sample information provided by research report? You should support your answer with calculations/analysis and show all steps in your method clearly.
Task 4 (200 words)
What are the key issues that Jake Fearne should consider when making a decision of this type and using the approach adopted in Task 2?
