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DAInClass - BUYING A HOUSE Debbie and George Calvert are...

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/ BUYING A HOUSE Debbie and George Calvert are thinking of making an offer to purchase a house in Shaker Heights, Ohio. Both George and Debbie saw the house this morning and fell in love with it. The asking price for the house is $400,000, and it has been on the mar- ket for only one day. Their broker told them that there were more than 20 potential buyers who saw the house that day. She also added that another broker told her that an offer on the house was going to be presented by that broker this afternoon. Their broker has advised them that if they decide to make an offer on the house, they should offer very close to the asking price of $400,000. She also added that if there are com- peting offers on the house that are close in value, then it is common practice for the seller to ask the potential buyers to submit their final offers the following day. Trying to be objective about this decision, Debbie has decided to construct a deci- sion tree to help her with this decision. She has assumed that the "fair market value" of the house under consideration is $400,000, She has assigned an "emotional value" of $10,000 if she and George are successful in purchasing the house. That is, whereas the fair market value of the house is $400,000, the house is worth $410,000 to Debbie and George. Thus,
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