MS&E 252
Handout #6
Decision Analysis I
10/1/2010
Homework Assignment #2
Due on Thursday Oct. 7
th
11:59 pm
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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:
start reading chapter 1
Definitions:
From the class lectures, explain the following concepts:
•
Decision basis
•
Sunk cost
•
Personal Indifferent Buying Price (PIBP)
•
Personal Indifferent Selling Price (PISP)
•
Cycle of Ownership
•
Market buying and selling price
•
Value in use
•
Value in exchange
•
Value of Clairvoyance
Probabilistic Questions:
(Submit solutions on Coursework)
1)
Big Game is the annual football rivalry game between Stanford University and UC
Berkeley.
Jack assigns a probability of 0.6 that Stanford will beat UC Berkeley in
Big Game 2010. Kim believes that the probability is actually 0.4 and challenges Jack
to a bet. If UC Berkeley wins, Jack pays Kim $100 and if Stanford wins, Kim pays
Jack $100.
Which of the following statements is valid according to principles taught in this
class?
a)
If Kim wins the bet, we know that she made a good decision.
b)
There is an objective probability that Stanford wins the game, so at most one
of Jack and Kim has stated the objective probability.
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Handout #6
Decision Analysis I
10/1/2010
c)
The clairvoyant’s probability that Stanford will win Big Game 2010 is greater
than 0 and less than 1.
d)
None of the preceding statements is valid.
2)
How many of these statements are true?
I.
The two possibilities “I never have drunk cow’s milk.” and “I have drunk milk
from a mammal
.” is mutually exclusive but not collectively exhaustive.
II.
The three possibilities “My bicycle cost more than $1000”, “My bicycle cost
more than $500 and less than $900”, “My bicycle cost me nothing.” is
mutually exclusive but not collectively exhaustive.
III.
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 Fall '09
 Decision Analysis, Influence diagram, PIBP

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