Manag., January-2017-Q30
- Option : B
- Explanation : The criterion of Realism (Hurwicz Criterion) : This criterion suggests that a rational decision-maker should be neither completely optimistic nor pessimistic and therefore, must display a mixture of both. Hurwicz, who suggested this criterion, introduced the idea of a coefficient of optimism (denoted by a) to measure the decision-maker's degree of optimism. This coefficient lies between 0 and 1, where 0 represents a complete pessimistic attitude about the future and 1 a complete optimistic attitude about the future. Thus, if a is the coefficient of optimism, then (1 – α) will represent the coefficient of pessimism. The Hurwicz approach suggests that the decision-maker must select an alternative that maximizes.
H (Criterion of realism) = a (Maximum in column) + (1 – α) (Minimum in column). The working method is summarized as follows.
(a) Decide the coefficient of optimism a (alpha) and then the coefficient of pessimism (1 – α).
(b) For each alternative select the largest and smallest payoff values and multiply these with a and (1 – a) values, respectively. Then calculate the weighted average. H by using the above formula.
(c) Select an alternative with the best anticipated weighted average payoff value.
