Problem 3: Dynamics (using Decision Trees) The Newtone Art Gallery has a valuable painting that it wishes to sell at auction. There will be three bidders for the painting. The first bidder will bid on Monday, the second on Tuesday, and the third will bid on Wednesday. Each bid must be accepted or rejected that same day. If all three bids are rejected, the painting will be sold for a standing offer of $900,000. Newtone's chief auctioneer's estimates for the bid probabilities are contained in the next table. Amount of Bid Bidder 1 (Monday) Bidder 2 (Tuesday) Bidder 3 (Wednesday) $1,000,000 0.0 0.0 0.7 $2,000,000 0.5 0.9 0.0 $3,000,000 0.5 0.0 0.0 $4,000,000 0.0 0.1 0.3 For example, the auctioneer has estimated that the likelihood the second bidder will bid $2,000,000 is 90%. Formulate and solve the problem of deciding which bid to accept as a decision tree. What should the auctioneer do?

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To formulate and solve the problem of deciding which bid to accept as a decision tree we can consider the potential bids and their associated probabil... View the full answer