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# 0 2 2 what to do 46348 texaco accepts counter 5

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Unformatted text preview: court award In strategic decision context, informa-on value can be nega-ve! 23 General Principles •  EVPI ≥ EVII ≥ 0 is true only in non- strategic problem instances. •  Timing of informa-on maeers. •  Informa-on that is revealed earlier is generally more valuable. •  The above may not be true in strategic decision- making instances. •  More examples to follow when we study game theory. 24 Problem 12.13 •  What if Liedtke could learn both Texaco’s reac-on and ﬁnal court decision before making up his mind about the \$2 Bn oﬀer on the table? •  Why is the value of both pieces of informa-on more than the sum of their individual values? 25 Problem 12.13 EVPI = 5.23 – 4.63 = 0.6 Bn No-ce that Texaco’s response had no value by itself Is this surprising? Explain why? 26 Why? •  Informa-on about Texaco’s reac-on was not valuable by itself because Liedtke’s op-mal decision with or without this informa-on was to counteroﬀer \$5 Bn •  With both pieces of informa-on, Liedtke can ﬁne tune his response, especially when award is 0. •  In par-cular, Liedtke counteroﬀers if Texaco will accept \$5 Bn, accepts \$2 Bn if Texaco will refuse, and accept the \$3 Bn counteroﬀer if Texaco will counteroﬀer. •  Such a reﬁned strategy is not possible with only one piece of informa-on. 27 Texaco- Pennzoil Minicase (p. 558) •  What if Liedtke could inﬂuence outcomes? •  How much will he be willing to pay to inﬂuence Kinnear? 28 Texaco- Pennzoil Revisited Expected value of wizardry = EMV (with control) – EMV(without control) = 5 – 4.63 = 0.37 Bn Hugh has a lot to gain from inﬂuencing Kinnear and should be willing to spend a hepy sum to do so. Please note this is illegal! 29 14.14, Risk Sensi-ve DM 30 Decision Tree with U-li-es Liedtke should s2ll counteroﬀer, but i...
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