Part E (16%)

Use the cost reduction figures (calculated in Part D) as the consequence values for a decision tree representation of the problem. Label all the branches and enter all the relevant values for all the consequence nodes. Assume again the marketing team are correct about probabilities (as stated in Part C) and show the appropriate probability value next to each branch coming out from each chance node.

Please upload a clear image of your hand-drawn decision tree. Only one file can be attached!

REFRENCE

Part C (16%)

The reductions in claims through the initiatives (mentioned in Part B) are in fact averages taken over two different reduction levels, labelled high success and low success. In case of high success, Initiative A is expected to result in 200 claims less per year from more-risky drivers and Initiative B in 375 claims less per year from less-risky drivers. In case of low success, there would be only 100 claims less for Initiative A and 75 claims less for initiative B. The marketing team in charge of developing the advertising strategies argues that the probability of high success is only 0.2 regardless of which initiative is implemented. Assume the marketing team is correct and answer the following questions:

Part D (8%)

The company now wants to investigate financial consequences of the two initiatives. From past data, it was found that a claim filed by a more-risky driver costs the company 420 on average while a claim filed by a low-risk policy holder costs 360 on average. Use the expected reductions in number of claims for various scenarios as given in Part C and calculate the total expected cost reduction for each combination between the two initiatives and the two possible levels of success.