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Test 2 Bank Part II Bayesian Analysis Problems _ .docx -...

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Chapter 3Decision Analysis (Part II)Bayesian Analysis ProblemsCase 1George Goleb is considering the purchase of two types of industrial robots. The Rob1 is a largerobot capable of performing a variety of tasks, including welding and painting. The Rob2 is asmaller and slower robot, but it has all the capabilities of Rob1. The robots will be used toperform a variety of repair operations on large industrial equipment. Of course, George canalways do nothing and not buy any robots. Thus, Rob 1, Rob 2 and “Do Nothing” are the threedecision alternatives. The market for the repair operation could be either favorable orunfavorable. Thus, “Favorable Market” and Unfavorable market” are the two states of nature.George has constructed a payoff matrix showing the expected returns of each alternative and theprobability of a favorable or unfavorable market. The data are presented:Favorable MarketUnfavorableProbability0.60.4Rob 150,000–40,000Rob 230,000–20,000Do Nothing00George Goleb is considering the possibility of conducting a survey on the market potential forindustrial equipment repair using robots. The cost of the survey is $5,000.If George Goleb conducts the survey, there is a 0.62 probability the survey will give favorableresults. Given favorable results:-There is a 0.871 probability the market will be favorableIf George Goleb conducts the survey, given unfavorable results:-There is a 0.842 probability the market will be unfavorableIf George Goleb doesn’t conduct the survey, the probabilities of favorable and unfavorable marketsare equal to the values given in the table above.Draw the decision tree for the problem faced by Mr. Goleb. Make sure to include all the nodesfor the decisions and states of nature, all the probabilities and all the payoffs in the decision tree.Your answers without decision tree won’t be accepted. Calculate the EMV at each state of nature

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Term
Fall
Professor
CHANG
Tags
Monica Britt, George Goleb

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