# Question: Reconsider Prob 16 2 4 Warren Buffy decides that Bayes decision rule

Reconsider Prob. 16.2-4. Warren Buffy decides that Bayes’ decision rule is his most reliable decision criterion. He believes that 0.1 is just about right as the prior probability of an improving economy, but is quite uncertain about how to split the remaining probabilities between a stable economy and a worsening economy. Therefore, he now wishes to do sensitivity analysis with respect to these latter two prior probabilities.

(a) Reapply Bayes’ decision rule when the prior probability of a stable economy is 0.3 and the prior probability of a worsening economy is 0.6.

(b) Reapply Bayes’ decision rule when the prior probability of a stable economy is 0.7 and the prior probability of a worsening economy is 0.2.

(c) Graph the expected profit for each of the three investment alternatives versus the prior probability of a stable economy (with the prior probability of an improving economy fixed at 0.1). Use this graph to identify the crossover points where the decision shifts from one investment to another.

(d) Use algebra to solve for the crossover points identified in part (c).

(e) Develop a graph that plots the expected profit (when using Bayes’ decision rule) versus the prior probability of a stable economy.

(a) Reapply Bayes’ decision rule when the prior probability of a stable economy is 0.3 and the prior probability of a worsening economy is 0.6.

(b) Reapply Bayes’ decision rule when the prior probability of a stable economy is 0.7 and the prior probability of a worsening economy is 0.2.

(c) Graph the expected profit for each of the three investment alternatives versus the prior probability of a stable economy (with the prior probability of an improving economy fixed at 0.1). Use this graph to identify the crossover points where the decision shifts from one investment to another.

(d) Use algebra to solve for the crossover points identified in part (c).

(e) Develop a graph that plots the expected profit (when using Bayes’ decision rule) versus the prior probability of a stable economy.

## Relevant Questions

While El Niño is pouring its rain on northern California, Charlotte Rothstein, CEO, major shareholder and founder of Cerebrosoft, sits in her office, contemplating the decision she faces regarding her company’s newest ...Dwight Moody is the manager of a large farm with 1,000 acres of arable land. For greater efficiency, Dwight always devotes the farm to growing one crop at a time. He now needs to make a decision on which one of four crops to ...Customers arrive at a single-server queueing system in accordance with a Poisson process with an expected interarrival time of 25 minutes. Service times have an exponential distribution with a mean of 30 minutes. Label each ...You are given an M/M/1 queueing system with mean arrival rate λ and mean service rate μ. An arriving customer receives n dollars if n customers are already in the system. Determine the expected cost in dollars per ...For each of the following models, write the balance equations and show that they are satisfied by the solution given in Sec. 17.6 for the steady-state distribution of the number of customers in the system. (a) The M/M/1 ...Post your question