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Midterm2_2005 - IEOR 166 Spring 2005 MIDTERM II(50 Minutes...

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IEOR 166, Spring 2005 S. Oren MIDTERM II (50 Minutes) Closed Book (Two two sided 8.5x11” note sheets allowed) Problem 1 (50%) Jaime is considering laser eye surgery and must decide whether or not to have it. The surgery costs $4000. She values a successful surgery, that will enable her to get rid of her uncomfortable contact lenses, at $10000 (above cost). However, she is worried about possible complications. She values the potential suffering due to complications at negative $100,000 (in addition to the cost of the surgery). If she decides not to perform the surgery, her payoff is 0. Based on research she has done on the Web, Jaime believes that her probability of having a successful surgery (with no complications) is 0.95. a) 15 pts) Construct Jaime’s decision tree and find the optimal decision based on her Web information. The eye surgery center recommends (but does not require) an imperfect screening examination. Calibration studies of the screening exam on a random sample of surgery patients have determined that
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