Tommelein_Parrish_Bayes

# Tommelein_Parrish_Bayes - Bayes Theorem Example and...

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1 Bayes Theorem Example and Choosing By Advantages Kristen Parrish CE167 Spring 2010 Lecture 16

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2 Bayes Theorem Example You are the owner of a construction company that was recently hired to build the world’s first mile-high building. While looking at the drawings for the building, you determine that the construction sequence may not lead to a stable structure. You estimate that the probability that the structure is stable is 80%. You bring this to the attention of the owner, who suggests that you build a mockup. The mockup will be stable if the structure is stable 95% of the time, and unstable if the structure is unstable 99% of the time. If the benefit from a stable structure is \$200,000 and the cost of an unstable structure is \$400,000, how much should the owner be willing to pay for a mockup?