Homework 4

# Homework 4 - MS&E 252 Decision Analysis I Handout#9...

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MS&E 252 Handout #9 Decision Analysis I 10/20/2007 Page 1 of 11 HW #4 Homework Assignment #4 Due on Thursday October 25 th , 11:59 pm In this assignment you are required to turn in the probabilistic section only. Again the "Food for thought" section is optional but will help you think in depth about the concepts covered and will help with your grade on participation. As mentioned in the course guide, we will expect full knowledge of all sections on this assignment. Assigned Reading 1. “The Foundation of Decision Analysis”: finish reading chapters 2 and 3. Distinctions From the class lectures, explain the following concepts: Prospect Deal Prior Likelihood Posterior Pre-posterior Preference Probability Five Rules of Actional Thought: The probability rule The order rule The equivalence rule The substitution rule The choice rule Money pump e-value u-value Probabilistic questions 1) In Italy, one person in 400 carries a harmful virus. A diagnostic test can detect this virus with 99% sensitivity; that is, for those who carry the virus, the probability of the test reporting that the virus is present (a “positive” test result) is 99%. The specificity of the test is also 99%; that is, for those who do not carry the virus, the probability of the test reporting the virus is not present (a “negative” test result) is also 99%. Brad Powley, an Italian, just received a “positive” test result. Which of the following is closest to the probability you should assign to him carrying the virus?

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MS&E 252 Handout #9 Decision Analysis I 10/20/2007 Page 2 of 11 HW #4 a) 0.20 b) 0.50 c) 0.99 d) 0.999 2) Consider the following relevance diagram: How many of the following operations can you perform on this relevance diagram without any further manipulation ? I. Remove the arrow from “Quality of Marketing” to . II. Add an arrow from “Marketing Cost” to “Product Development” . III. Flip the arrow that goes from “Management Team Quality” to “Product Development” . IV. Add an arrow from “ to “Management Team Quality” . a) 0 -1 b) 2 c) 3 d) 4 3) Based on the same relevance diagram as Question 2, how many of the following statements can you infer after performing any legal and necessary manipulation(s) ? I. “Marketing Cost” and “Quality of Marketing” are relevant given ± . Product Development Management Team Quality Quality of Marketing Number of Purchases Marketing Cost Development Cost
MS&E 252 Handout #9 Decision Analysis I 10/20/2007 Page 3 of 11 HW #4 II. “Marketing Cost” and “&umber of Purchases” are irrelevant given “Management Team Quality” and ± . III.

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## This note was uploaded on 06/16/2010 for the course MS&E 252 taught by Professor Howard during the Fall '08 term at Stanford.

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Homework 4 - MS&E 252 Decision Analysis I Handout#9...

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