Decision Trees Extra Practice Problems

Decision Trees Extra Practice Problems - (1) Jeffrey Mogul...

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(1) Jeffrey Mogul is a Hollywood film producer and he is currently evaluating a script for a movie by a new screenwriter and director, Betty Jo Thurston. Jeffrey knows that the probability of a film by a new director being a success is about 0.10 and the probability it will flop is 0.90. The studio accounting department estimates that if this film is a hit, it will make $25 million in profit, whereas if it is a box office failure, it will lose $8 million. Jeffrey is considering hiring a noted film critic, Gene Sickel, to read the script and assess its chances of success. Sickel is generally able to correctly predict a successful film 70% of the time and correctly predict an unsuccessful film 80% of the time. Sickel wants a fee of $1 million. a. Draw the decision tree for this problem. b. Compute the revised probabilities needed to complete the decision, and place these values in the decision tree. c. Determine if Sickel should be hired, the strategy Mogul should follow if Sickel is hired, and the expected value. d. Compute Mogul’s EVPI. (2) Chelsea Bush is an emerging candidate for her party's nomination for president of the US. She is considering whether or not to run in the Super Tuesday (ST) primaries. If she enters the ST primaries, she and her advisors believe that she will either do well (finish 1st or 2nd) or do poorly (finish 3rd or worse) with probabilities of 0.40 and 0.60, respectively. Doing well on Super Tuesday will net her campaign approximately $16 million in new contributions, whereas a poor showing will mean a loss of $10 million after numerous TV ads are paid for. Alternatively, she may choose not to run at all on Super Tuesday and incur no costs. Chelsea's advisors realize that her chances of success on Super Tuesday may be affected by the outcome of the smaller New Hampshire (NH) primary occurring three weeks earlier. The cost of entering and campaigning in the NH primary is estimated to be $1.6 million.
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Decision Trees Extra Practice Problems - (1) Jeffrey Mogul...

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