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DAInClassSolutions - ESI 6321 APPLIED PROBABILITY METHODS...

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1 ESI 6321 APPLIED PROBABILITY METHODS IN ENGINEERING OEM 2009 December 9, 2007 IN-CLASS ASSIGNMENT - SOLUTIONS
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2 CASE 1: BUYING A HOUSE (a) (b) The optimal decision strategy for Debbie and George is to bid $390,000 initially. If there are other bidders and the seller ask them to submit a final offer the following day, then they should increase their offer by $5,000 the next day, that is, make a final offer of $395,000. The EMV for this strategy is $5,550. B A C D E F G H I J K L M N O P $390k bid $400k bid $405k bid only bid 0.3 only bid 0.3 only bid 0.3 other bids 0.7 other bids 0.7 other bids 0.7 accept 0.4 reject 0.6 accept 0.2 accept 0.3 accept 0.5 accept 0.7 accept 0.7 accept 0.8 reject 0.8 reject 0.7 reject 0.5 reject 0.3 reject 0.3 reject 0.2 accept 0.6 reject 0.4 accept 0.9 reject 0.1 $20k $0 $20k $15k $10k $5k $5k $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $10k $5k $4k $4.5k $5k $3.5k $3.5k $0 withdraw withdraw withdraw same same same raise $5k raise $5k raise $5k $4.5k $5k $3.5k $8k $6k $4.5k $5.55k $5.3k $3.8k $5.55k
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DAInClassSolutions - ESI 6321 APPLIED PROBABILITY METHODS...

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