Informa on that is revealed earlier is generally more

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Unformatted text preview: f Texaco further counteroffers $3 Bn, he should accept that op2on. This is consistent with Liedtke becoming more risk averse. 31 EU of Counteroffer is $2.8 Bn •  The seelement amount corresponding to an EU of 0.575 is approximately $2.8 Bn. •  Liedtke should not accept a counter offer of less than about $2.8 Bn 32 14.15, Mul-ple DMs Director A is highly risk averse Director B is slightly risk seeking 33 Mul-ple DMs (Cont’d.) Director C appears to be risk neutral 34 Mul-ple DMs (Cont’d.) •  We do not expect each director to choose the same op-ons •  We already know what Director C would do because we solved the case with a risk neutral DM earlier •  Do you think we should first rescale u-lity func-ons so they have the same range, say from 0 to 1? 35 Mul-ple DMs (Cont’d.) 36 Mul-ple DMs (Cont’d.) 37 Mul-ple DMs (Cont’d.) 38 Mul-ple DMs (Cont’d.) •  Director A is highly risk averse and will accept $2 Bn offer •  Director B is slightly risk seeking. S(H)he will counteroffer and reject the $3 Bn counteroffer. S(H)e prefers to go to the court. •  Director C has the same preferences as in the base case 39 14.16, How to reconcile differences? Reconciling differences is a difficult problem Arrow’s impossibility theorem Consensus forming Vo-ng will favor counteroffer $5 Bn first and turndown the $3 Bn Texaco’s offer later •  One prac-cal solu-on might be to have a dictator – let Liedtke choose •  Mul-- aeribute u-lity theory, AHP •  •  •  •  40 Texaco- Pennzoil One More Time •  When UF is exponen-al, we can calculate value of informa-on by taking differences in the CEs with and without informa-on •  Suppose R = 1 Bn. •  An acquaintance has offered to find out how Kinnear will respond to the counteroffer of $5 Bn. How much is this informa-on...
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This document was uploaded on 03/12/2014 for the course IE 5545 at Minnesota.

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