Freemark Abbey (2018).pdf - MGT562 Spring 2018 Farahat Critical Thinking Processes Modeling for Effective Decision Making DecisionAnalysis:Freemark

Freemark Abbey (2018).pdf - MGT562 Spring 2018 Farahat...

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Unformatted text preview: MGT562 – Spring 2018 - Farahat Critical Thinking Processes & Modeling for Effective Decision Making Decision Analysis: Freemark Abbey (Full annotated version of these slides, with solutions, will be posted after class) Case Summary The management of Freemark Abbey Winery is facing the decision of whether to harvest the Riesling grapes now or to harvest them later. The decision is complicated by news that a storm may soon hit the vineyards. Such a storm would often result in poor quality grapes. However, if the storm is warm and humid enough then it might carry with it a certain type of mold called botrytis that can result in expensive wines. If the storm doesn’t hit the vineyard then the grapes could be left to ripen further likely producing better grapes than could be harvested now. Case Questions 1. Assuming Mr. Jaeger chooses to harvest the Riesling grapes before the storm arrives, how much money will he make? 2. Assuming Mr. Jaeger chooses to leave the grapes on the vine, what is the probability that the grapes will end up with botrytis, and how much money will he make if that occurs? 3. Construct a decision tree to help Mr. Jaeger analyze the problem. Fold back the decision tree, and answer: a) What is the maximum expected payoff for the problem? What strategy achieves this expected payoff? b) For what range of values of the probability the storm arriving would your above recommendation remain valid? c) How much should Mr. Jaeger be willing to pay to learn whether the storm really will hit the Napa Valley? d) How much should Mr. Jaeger be willing to pay to learn whether botrytis would form if the storm were to hit the Napa Valley? Q1: Assuming Mr. Jaeger chooses to harvest the Riesling grapes before the storm arrives, how much money will he make? Q2: Assuming Mr. Jaeger chooses to leave the grapes on the vine, what is the probability that the grapes will end up with botrytis, and how much money will he make if that occurs? Decision Tree Model Harvest now Botrytis forms Storm No botrytis Harvest later 25% sugar, good acidity No storm 20% sugar, good acidity low sugar or poor acidity Q3a: What is the maximum expected payoff for the problem? What strategy achieves this expected payoff? The real question is: What should Mr. Jaeger do? Q3b: For what range of values of the probability the storm arriving would your recommendation remain valid? Q3c: How much should Mr. Jaeger be willing to pay to learn whether the storm really will hit the Napa Valley? Q3d: How much should Mr. Jaeger be willing to pay to learn whether botrytis would form if the storm were to hit the Napa Valley? Q3d: How much should Mr. Jaeger be willing to pay to learn whether botrytis would form if the storm were to hit the Napa Valley? (Alternative approach – same answer) ...
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