9781118041581

Summary 537 you would be willing to pay as much as $120 for it. Thus, you can buy it now (for a profit of $120 $100 $20) or wa ...

Consider once again the R&D strategies of the pharmaceutical company. Suppose the company’s management is risk averse and h ...

Summary 539 Put yourself in the yacht dealer’s shoes. You currently are considering other order quantities in addition to 50 an ...

Keefer, D. L., C. W. Kirkwood, and J. L. Corner. “Perspective on Decision Analysis Applications, 1990–2001.” Decision Analysis. ...

Forecasting the economy is big business. Scores of forecasters, many using econo- metric models that contain hundreds of equatio ...

decision making is illustrated by the following questions: Should a consumer products firm undertake an expensive test-market pr ...

The Value of Information 543 bad one. The course of action—drill if and only if the test is good—is also shown on the tree. How ...

A decision maker should acquire costly information if and only if the expected value of the information exceeds its cost. Before ...

The Value of Information 545 that 30 of the 100 sites tested good and proved to contain oil. The other entries have similar inte ...

tree, which incorporates the seismic results. We start by emphasizing the sequence of events in the tree. As in Figure 13.1, the ...

Revising Probabilities 547 is simply (.5)(280,000) (.5)(0) $140,000. Remembering that the expected profit without the test is ...

Once we have the table of joint probabilities, it is a simple matter to compute the probabilities needed for the decision tree. ...

Revising Probabilities 549 orem expresses the conditional probability needed for the decision in terms of the reverse conditiona ...

we conclude that Pr(LCƒS) 4Pr(LC). In words, the risk of lung cancer for a smoker is fourtimes the overall risk of lung cancer ...

Other Applications 551 From the table, we easily calculate that Pr(WƒG) .1/.2  .5 and Pr(WƒB)  .3/.8  .375. After seeing a g ...

can the firms’ product managers judge the likely success rates of different products? Which kinds of products (and marketing cam ...

Other Applications 553 tomer, the type and purpose of the loan, and forecasts of future economic con- ditions, all of which infl ...

554 Chapter 13 The Value of Information TABLE 13.2 Assessing Loan Risks Part (a) lists the fre- quency of loan cate- gories by a ...

Other Applications 555 must be able to explain the reasons for their forecasts to others. Again, formal analysis is essential. T ...

EXAMPLE 1 For this question, the most common response by far is librarian, followed by farmer and airline pilot. Apparently the ...