For the second homework, well dive into concepts around clarifying values and building influence TREE diagrams.

Note: Please take time to review the Roleplay value in use and value in exchange found in the Week 4 folder on D2L. We also performed this roleplay during the online class session.

A friend of yours mentions that his PIBP for the shirt deal in class ranges from $20 $30. What argument can you give him to explain it is not wise to have a range for his PIBP? [10 points]

Give examples of at least three items you own where you feel your PISP would increase by receiving substantial wealth. Identify at least three other items for which you feel your PISP would go down. [10 points]

Food For Thought

The purpose of this question is to help you practice determining your PIBP. Using your web browser, refer to the Internet auction site ebay.com. Select an item that interests you, then answer the questions below. [30 points]

What is it?

Establish your PIBP for that item. How much is it?

How did you determine your PIBP?

Did you identify just one value or a range of values?

Would you bid for that item in a closed bid system with your PIBP? Write at least four sentences comments about the bid you would make in a closed vs. open bid auction. Would your bid, based on your PIBP, be different in one auction than another? Why?

Assuming your bid with the value of your PIBP won the auction, you acquired the item. Do you believe you got a good deal? Please repeat this step until you narrow it down to where you will feel indifferent to whether or not you acquire the item. If you had to narrow down the bid, what is the final offer?

Your Sphere of Influence

For this exercise, youll create two influence diagrams. The first is a simple wager value diagram. The second is a more complex house mortgage value diagram. Dont get too complicated for the second diagram. But try to include as many uncertainties as relevant within a one-page document. You can use any tool you want, but I recommend using Hugin Lite (https://www.hugin.com/hugin-lite/) if you want to create clean diagrams using a computer. Refer to the lecture slides to ensure you understand the symbols and what they represent. [50 points]

Suppose that you are offered to play a simple dice game where the highest roll wins the game. The value of this game is you will receive $50 if you have the highest roll and lose $50 if you have the lowest roll. The decision is to play the game or not play the game. The winner is determined by rolling two dice consecutively and choosing the die with the highest value. After the first die is rolled, you can choose to back out of the game for a $10 fee, ending the game. Create an influence diagram for this game. Note: You will have two decision nodes. Dont forget about your opponent.

Thinking back to the first homework, create an influence diagram that shows how the value of the mortgage on the property will be determined. Start simple and expand. Remember my advice not to get too complicated but try and focus on the most relevant uncertainties. Note: There will be one decision. There should be at least one node that is not uncertain