2013 qso 510 45 decision alternative favorable market

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2013 QSO 510 45 Decision Alternative Favorable Market Unfavorable Market Expected Value Build large plant 400,000 -300,000 -20,000 Build small plant 80,000 -10,000 26,000 Don’t build 0 0 0 Probabilities 0.4 0.6 Expected Value with Perfect information = EVwPI = 0.4(400,000)+0.6(0) = $160,000 Expected Return without Perfect information = $26,000 EVPI = EVwPI – EMV = $160,000 - $26,000 = $134,000
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Pay a coin toss game How much are you willing to pay to play? St. Petersburg Paradox 2013 46 QSO 510 Decision Making with Utility Outcome First heads is on toss #1 First heads is on toss #2 First heads is on toss #3 First heads is on toss #4 First heads is on toss #5 ..... Probability 1/2 1/4 1/8 1/16 1/32 ..... Payoff $1 $2 $4 $8 $16 ..... "few of us would pay even $25 to enter such a game" ——Martin (2004) ܧܸ = 1 2 $1 + 1 4 $2 + 1 8 $4 + ⋯ →∞
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Two prisoners Offered with following deal Prisoner’s Dilemma 2013 47 QSO 510 Decision Making with Game Theory Both confess and end up with 20 years!
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Take-away Payoff Table Decision making criteria Decision tree Notes and examples HW 6 Due Week 9 Lecture Your job 2013 48 QSO 510
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  • Spring '13
  • WenjunGu
  • Tom Brown