Victor has just received his $ 20,000 bonus and is not sure how to invest this money.
Question:
Victor has just received his $ 20,000 bonus and is not sure how to invest this money. One option is for him to invest it in Bitcoin and the other is to leave the money in the savings account. In case of investing in Ethereum, he runs the risk that after a year its price will drop 10% of its current price (which would represent a loss of money for Victor), but it can also increase 20% of his Actual Price. After looking at the price action graph, he thinks there is a 50% chance that the price will go down, a 20% chance that the price will stay the same, and a 30% chance that the price will go up. Instead, if he decides to leave the money in the savings account, he is guaranteed 5% interest after one year.
a) With this information, what decision should Victor make according to each of the decision criteria (Maximax, Maximin, Maximum probability, Bayes)?
Before making this decision, Marco approached Victor and offered to do a statistical analysis to know precisely what will happen after a year with the price of Ethereum. The result of this analysis (forecast that the price will rise, fall or remain the same) depends on the prior probabilities that Victor already knows. For this study, Marco would charge him $ 800 but he can pay it until after a year so that Victor can invest his entire Christmas bonus.
b) Performs the analysis to decide whether to accept Marco's help and the investment that Victor must make to achieve the highest expected profit value. He uses a tree diagram to support both items.
