The physicians in Problem 3-34 have been approached by a market research firm that offers to perform a study of the market at a fee of $5,000. The market researchers claim their experience enables them to use Bayes' theorem to make the following statements of probability:
Probability of a favorable market given
A favorable study = 0.82
Probability of an unfavorable market given
A favorable study = 0.18
Probability of a favorable market given
An unfavorable study = 0.11
Probability of an unfavorable market given
An unfavorable study = 0.89
Probability of a favorable research
Study = 0.55
Probability of an unfavorable research
Study = 0.45
(a) Develop a new decision tree for the medical professionals to reflect the options now open with the market study.
(b) Use the EMV approach to recommend a strategy.
(c) What is the expected value of sample information? How much might the physicians be willing to pay for a market study?