Texas Oil owns a parcel of land that has the potential for containing much oil, some oil, or no oil underground. The company needs to decide whether or not to drill on this parcel. The payoffs are as follows in millions of dollars:
Based on historical data from the surrounding area, Texas Oil has assessed the probabilities of much, some, and no oil to 0.1, 0.3, and 0.6 respectively.
a. Choose the best option for Texas Oil using the probability data.
b. What is the most Texas Oil should pay for additional information about the probability of oil underground?

  • CreatedJuly 29, 2015
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