Probabilites problem solution
...e a new electric razor. If market were favorable, return = $100,000 If market were unfavorable, return = $60,000 Options: Bush Marketing Research Survey: $5000 Pilot Study: $20,000 Value of Survey: Value of Pilot: .5 = P of successful market with no survey or pilot study .7 = P of favorable survey given a favorable market .2 = P of favorable survey given unsuccessful market .9 = P of unfavorable pilot study given an unfavorable market .2 = P unfavorable pilot study given a favorable market Draw decision tree without P values Compute revised P needed to complete decision & place on tree What is best decision using EMV as decision criteria? 3-38 Two states of nature: good or poor economy. Economics study done to see which will occur in next year. Study can forecast either good or poor economy. 60% P good 40% P poor Historical 80% P that survey predicted economy good & economy was good 20% P that survey predicted economy good & economy was poor 90% P survey predicted economy poor & economy was poor 10% P survey predicted economy poor & economy was good Use Bayes’ theorem to find: (a) P(good economy l prediction of good economy) P(...