(Use the DT above) What is the expected value of perfect information for ‘Delivery Time Decrease’? What is the value of control for ‘Delivery Time Decrease’?

Q8. (Use the DT above) A consulting firm, McKinsey & Company, gives some idea about market response forecasting. Their prediction accuracy about market response is known as 90%. That is, probability that Event A actually occurs given that McKinsey & Company says Event A will occur is 0.9. That is P(A | “A”) = 0.9, and P(AC | “AC”) = 0.9.

1) Draw an influence diagram with the market response forecasting node and its relationship with market response.

2) If you are a CEO of Amazon, what is your maximum willingness to pay (value of imperfect information) for the McKinsey & Company’ prediction for market response?

Transcribed Image Text:

Suppose that the decision tree for the situation is: Amazon Anticipatory Shipping Yes No Implement? 10 TRUE -100 FALSE 0 High Delivery Time Decrease 10 Low 50.0% 0.0% 0 0 50.0% 0 High Market Response Low High 64 Market Response Low -44 80.0% 200 20.0% 20 20.0% 200 80.0% 20 40.0% 100 10.0% -80 10.0% 100 40.0% -80 Suppose that the decision tree for the situation is: Amazon Anticipatory Shipping Yes No Implement? 10 TRUE -100 FALSE 0 High Delivery Time Decrease 10 Low 50.0% 0.0% 0 0 50.0% 0 High Market Response Low High 64 Market Response Low -44 80.0% 200 20.0% 20 20.0% 200 80.0% 20 40.0% 100 10.0% -80 10.0% 100 40.0% -80