A given property is to be sold to the highest bidder. If you obtain the property, the
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Question:
A given property is to be sold to the highest bidder. If you obtain the property, the selling price is V. Let the unknown maximum bid of your competitor be X with probability distribution f and cumulative distribution F.
1) Obtain EOL and draw the decision tree (20 Pts)
2) Using part 1, show that EVPI = V – E[X] – (V-a*) F( a*), where a* is your optimal bid (5 Pts)
Related Book For
Probability & Statistics for Engineers & Scientists
ISBN: 978-0130415295
7th Edition
Authors: Ronald E. Walpole, Raymond H. Myers, Sharon L. Myers, Keying
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