This preview shows page 1. Sign up to view the full content.
Unformatted text preview: at should you do to minimize the expected expense?
Write the Airfare problem as a decision tree, and solve it.
Solution. The decision tree is: The optimal decision is to buy the refundable ticket for $450, and then wait to see what
the price of the airline ticket is the second time. If the price is $300, refund the old ticket
(for $430) and buy the ticket at $300, paying a total of $320. If the price is $600, keep the
refundable ticket you bought. The expected cost of your ticket is $385. Problem 2
1 This problem is also discussed in the class. Value of Information Suppose Tom is at a carnival
and while there he sees a green monkey stuﬀed animal
that he would like to have. In o...
View Full Document
This note was uploaded on 03/18/2014 for the course MGMT 15.053 taught by Professor Jamesorli during the Spring '07 term at MIT.
- Spring '07