9781118041581

I Decision-Making Applications C hapters 12 through 17 examine a number of important applications that are amenable to the types ...

498 Chapter 14 considers the implications of asymmetric information—the case in which an agent on one side of a transaction has ...

Selling yachts is a very cyclical industry. In a booming economy, large increases in personal dis- posable income greatly expand ...

Listing the outcomes that can possibly occur (these will depend on chance events as well as on his or her own actions). Evaluat ...

Uncertainty, Probability, and Expected Value 501 assess the likelihood of their occurrence. Uncertainty is acknowledged in expre ...

information that might bear on the outcome in question.^2 For the new product, this would include consumer surveys, test-market ...

Decision Trees 503 More generally, suppose the decision maker faces a risky prospect that has n possible monetary outcomes, v 1 ...

problem starts with a point of decision, by convention represented by a square, from which emanate two branches: the decisions t ...

Decision Trees 505 Note that this expected profit is a weighted average of the possible outcomes, the weight for each outcome be ...

government. Perhaps the greatest virtue of using decision trees in evaluating and comparing risks is that it reminds us of the d ...

Decision Trees 507 profits: the cost of drilling and recovery, the amount of oil discovered, and the price of oil per barrel. As ...

508 Chapter 12 Decision Making under Uncertainty $76 .2 $69 .5 $55 .3 $76 .2 $69 .5 $55 .3 $76 .2 $69 .5 $55 .3 D E F 700 2,460 ...

Decision Trees 509 reserve at a depth of 3,000 feet. The three branches list the profit outcomes for this field depending on the ...

developing a “world” car to be marketed and sold all over the globe. Procter & Gamble and Kimberly-Clark compete for the dis ...

Sequential Decisions 511 Africa and the Philippines. Instead, it has been humbled by well-established local competitors catering ...

We observe that the biogenetic (G) approach requires a greater initial investment and is significantly riskier than the biochemi ...

Sequential Decisions 513 successful. The probability of each joint outcome is the product of the probabili- ties of the individu ...

greater than the alternative. Thus, regardless of the outcome of the biochemi- cal program, the biogenetic program also should b ...

Sequential Decisions 515 How do we account for the superiority of first pursuing the biogenetic method? To answer this question, ...

516 Chapter 12 Decision Making under Uncertainty CHECK STATION 3 Firm A is deliberating whether to launch a new product. If firm ...