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11. Lab Week 11 Problem Solutions

# 11. Lab Week 11 Problem Solutions - Lab Week 11 Problem...

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Lab Week 11 Problem Solutions CHAPTER 10 DECISION ANALYSIS 17. 17 a and b.

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c. 98% St 50,000 \$ A 49,400 \$ 2% Ch 20,000 \$ 0.72 49,400 \$ 98% Stable B St 10,000 \$ Use Agency 11,400 \$ 2% 51,304 \$ Ch 80,000 \$ 0.28 34% 51,304 \$ Changing St 50,000 \$ USE A 30,200 \$ 66% AGENCY 56,200 \$ Ch 20,000 \$ 34% Don't use agency B St 10,000 \$ 56,200 \$ 66% Ch 80,000 \$ 80% St 50,000 \$ 44,000 \$ 20% A Ch 20,000 \$ 44,000 \$ 80% B St 10,000 \$ 24,000 \$ 20% Ch 80,000 \$ \$49,400 \$56,200 \$44,000 \$51,304 \$24,000 \$30,200 \$11,400 Decision Strategy: Use the agency, if the agency forecast stable economy then go with strategy A, if the agency forecast changing economy the go with strategy B. the Expected value of such decision strategy is \$51,304. d. Yes he should go with the agency as EVSI = \$7,304, while fee is only \$3,000. EVSI = Expected value with additional information – EMV (no survey) = 51,304 - 44,000 = \$7,304. e. Efficiency = EVSI/EVPI where EVPI = EPC – max EMV Expected Payoff under Certainty (EPC) = Expected Value with Perfect information = 0.8(50,000) + 0.2(80,000) = 56,000 EVPI = EPC – max EMV = 56,000 – 44,000 = 12,000 Efficiency = EVSI/EVPI = 7,304/12,000 = .60867 ( or 60.867%)
19 a. 20(1-P H )+ 20P H = 10(1-P H )+ 40P H 20 – 20P h + 20P h = 10 - 10P H + 40P H P H = 1/3 will make the payoffs equal.

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11. Lab Week 11 Problem Solutions - Lab Week 11 Problem...

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