Ryan resides in a region where the probability of a major earthquake next year is estimated...

 

Transcribed Image Text:

Ryan resides in a region where the probability of a major earthquake next year is estimated to be 5%. A major earthquake will totally destroy Ryan's house, which is worth around 200K TL. In order to protect against this risk, Ryan considers buying earthquake insurance. The insurance policy that she is currently considering will cover 80% of the loss in case of an earthquake and it has a fixed annual cost of 5K TL. Assume that Ryan is concerned only with her wealth in choosing between buying or not buying this insurance policy. 1. Draw an influence diagram for Ryan's problem. Clearly label all nodes and include all relevant information. You do not need to include the probabilities and the outcome values. 2. Draw a decision tree for Ryan's problem. Clearly label all nodes and include all relevant information. Ryan resides in a region where the probability of a major earthquake next year is estimated to be 5%. A major earthquake will totally destroy Ryan's house, which is worth around 200K TL. In order to protect against this risk, Ryan considers buying earthquake insurance. The insurance policy that she is currently considering will cover 80% of the loss in case of an earthquake and it has a fixed annual cost of 5K TL. Assume that Ryan is concerned only with her wealth in choosing between buying or not buying this insurance policy. 1. Draw an influence diagram for Ryan's problem. Clearly label all nodes and include all relevant information. You do not need to include the probabilities and the outcome values. 2. Draw a decision tree for Ryan's problem. Clearly label all nodes and include all relevant information.

Answer rating: 100% (QA)

1 Influence Diagram for Ryans Problem Decision D v Buy B v Earthquake v House Destroyed HD In this i... View the full answer