The company from Exercises has the option of hiring an economics consulting firm to predict consumer confidence. The company has already considered that the probability of rising consumer confidence could be as high as 0.70 or as low as 0.40. They could ask the consultants for their choice between those two probabilities, or they could just pick a probability in the middle, such as .50, and choose a strategy based on that.
In exercise
a) Draw the decision tree including the decision to hire the consultants.
b) Would the consultants’ information be useful? Explain.
c) The company thinks there’s an equal chance of either of the consulting alternatives being what the consultant’s report. What’s the value to the company (per customer) of the extra information?

  • CreatedMay 15, 2015
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