2010_HW2 - MS&E 252 Decision Analysis I Handout#6 Homework...

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MS&E 252 Handout #6 Decision Analysis I 10/1/2010 Homework Assignment #2 Due on Thursday Oct. 7 th 11:59 pm Homework Submission Logistics: You can access the MSE 252 homework submission site from Coursework at http://coursework.stanford.edu . Click on “submit homework” on the left-hand menu. If coursework is down, please access the site from: http://da1.stanford.edu/homework/ . Note: The server gets very busy between 11:30 and 11:59 pm on Thursdays as it experiences a glut of requests from students. Submit early!! 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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MS&E 252 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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2010_HW2 - MS&E 252 Decision Analysis I Handout#6 Homework...

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