570 Chapter 13 The Value of Information- The expected value of information is the difference between the
decision maker’s expected profit with the information and without it. - In a simultaneous search setting, the manager determines the optimal
number of alternatives so that the marginal benefit of an additional
alternative matches its marginal cost.
Questions and Problems
- It is time to buy a new car, and you have done a considerable amount of
research on the matter over the past weeks. From consumer magazines and
various online sources, you have reviewed an impressive body of information
on different models’ repair records, road handling, specifications and
features, comfort, customer satisfaction, and so on. You have test-driven a
half-dozen candidates and discussed prices with several dealers for each
model. All things considered, you have decided to buy a Model M and will
finalize purchase in the next few days. However, after attending a party last
night, you are less certain. An acquaintance spent the better part of the
evening recounting the disastrous experience he had with his new Model M.
He got rid of the car after six months of electrical, steering, and handling
problems. He is considering suing the dealer and claims you are crazy even
to consider buying the Model M. What do you do now? - Just prior to baseball’s spring training season, you are asked to assess the
probability that a particular baseball team will win the coming World Series.
a. How would you go about making this assessment? In what sense is this
assessment subjective?
b. If you knew absolutely nothing about baseball, what would be the
appropriate probability assessment? As an avid sports fan, how would
you modify this “naive” assessment? How would your assessment
change day by day as the season progressed? - A health club has sent promotional material to a mailing list consisting of
local college students, area doctors, and lawyers. The following table shows
the record of individuals taking up the club’s introductory offer in the
first 10 days of the promotion.
Frequency of Respondents
Responded Did Not Respond Total
Students .08 .16 .24
Doctors .05 .13 .18
Lawyers .09 .49 .58
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