The chief executive officer of a firm in a highly competitive industry believes that one of her
Question:
Another problem she must consider is that the available lie detector tests are not perfectly reliable. In particular, if a person is lying, the test will reveal that the person is lying 95% of the time. Furthermore, if a person is not lying, the test will indicate that the person is not lying 85% of the time.
a. To minimize the expected total cost of managing this difficult situation, what strategy should the CEO adopt?
b. Should the CEO order the lie detector tests for all of her employees? Explain why or why not.
c. Determine the maximum amount of money that the CEO should be willing to pay to administer lie detector tests.
d. How sensitive are the results to the accuracy of the lie detector test? Are there any “reasonable” values of the error probabilities that change the optimal strategy?
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Data Analysis and Decision Making
ISBN: 978-0538476126
4th edition
Authors: Christian Albright, Wayne Winston, Christopher Zappe
Question Posted: