Consider a bidding problem similar to that presented in class. You can still either bid

high or low on either the dam or highway project, or you can not prepare a bid.

However, the probabilities and outcomes are given in Tables $2\mathrm{.}1$ and $2\mathrm{.}2.$

Table $2\mathrm{.}1$ Probabilities and profits of bid results

Table $2\mathrm{.}2$ Outcome and probabilities, conditional on winning the bid

a$($i$)$ Consider that you want to maximize the Expected Value $($EV$)$ of profit. Draw

the decision tree and "work the problem" on the decision tree $($i$.$e$.,$ indicate the

various EV values in "boxes" at the appropriate places$).$

a$($ii$)$ What is the optimal or best decision? What is the Expected Value of the

profit for this decision?

b$($i$)$ Consider that you want to maximize the Expected Utility $($EU$),$ with

U$($Profit$)=($Profit $+400,000)/2,400,000^0\mathrm{.}8$

Draw the decision tree and $$work the problem$$ on the decision tree $($i$.$e$.,$ indicate

the various EU values in $$boxes$$ at the appropriate places$).$

b$($ii$)$ What is the optimal or best decision? What is the Expected Utility for this

decision?

b$($iii$)$ What is the Certainty Equivalent of this alternative?