FIRST COURSE IN PROBABILITY (LOOSELEAF)
10th Edition
ISBN: 9780134753751
Author: Ross
Publisher: PEARSON
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Textbook Question
Chapter 7, Problem 7.30P
If X and Y are independent and identically distributed with
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Starting with the finished version of Example 6.2, attached, change the decision criterion to "maximize expected utility," using an exponential utility function with risk tolerance $5,000,000. Display certainty equivalents on the tree.
a. Keep doubling the risk tolerance until the company's best strategy is the same as with the EMV criterion—continue with development and then market if successful.
The risk tolerance must reach $ 160,000,000 before the risk averse company acts the same as the EMV-maximizing company.
b. With a risk tolerance of $320,000,000, the company views the optimal strategy as equivalent to receiving a sure $____________ , even though the EMV from the original strategy (with no risk tolerance) is $ 59,200.
Starting with the finished version of Example 6.2, attached, change the decision criterion to "maximize expected utility," using an exponential utility function with risk tolerance $5,000,000. Display certainty equivalents on the tree.
a. Keep doubling the risk tolerance until the company's best strategy is the same as with the EMV criterion—continue with development and then market if successful.
The risk tolerance must reach $ ____________ before the risk averse company acts the same as the EMV-maximizing company.
b. With a risk tolerance of $320,000,000, the company views the optimal strategy as equivalent to receiving a sure $____________ , even though the EMV from the original strategy (with no risk tolerance) is $ ___________ .
A television network earns an average of $14 million each season from a hit program and loses an average of $8 million each season on a program that turns out to be a flop. Of all programs picked up by this network in recent years, 25% turn out to be hits and 75% turn out to be flops. At a cost of C dollars, a market research firm will analyze a pilot episode of a prospective program and issue a report predicting whether the given program will end up being a hit. If the program is actually going to be a hit, there is a 75% chance that the market researchers will predict the program to be a hit. If the program is actually going to be a flop, there is only a 30% chance that the market researchers will predict the program to be a hit.
What is the maximum value of C that the network should be willing to pay the market research firm? Enter your answer in dollars, not in million dollars.
$ __________
Calculate EVPI for this decision problem. Enter your answer in dollars, not in million…
Chapter 7 Solutions
FIRST COURSE IN PROBABILITY (LOOSELEAF)
Ch. 7 - A player throws a fair die and simultaneously...Ch. 7 - The game of Clue involves 6 suspects, 6 weapons,...Ch. 7 - Gambles are independent, and each one results in...Ch. 7 - Prob. 7.4PCh. 7 - The county hospital is located at the center of a...Ch. 7 - A fair die is rolled 10 times. Calculate the...Ch. 7 - Suppose that A and B each randomly and...Ch. 7 - N people arrive separately to a professional...Ch. 7 - A total of n. balls, numbered 1 through n, are put...Ch. 7 - Consider 3 trials, each having the same...
Ch. 7 - Consider n independent flips of a coin having...Ch. 7 - A group of n men and n women is lined up at...Ch. 7 - A set of 1000 cards numbered 1 through 1000 is...Ch. 7 - An urn has m black balls. At each stage, a black...Ch. 7 - In Example 2h, say that i and j, ij form a matched...Ch. 7 - Let Z be a standard normal random variable, and,...Ch. 7 - A deck of n cards numbered 1 through n is...Ch. 7 - Cards from an ordinary deck of 52 playing cards...Ch. 7 - Prob. 7.19PCh. 7 - Prob. 7.20PCh. 7 - For a group of 100 people, compute a. the expected...Ch. 7 - How many times would you expect to roll a fair die...Ch. 7 - Urn I contains 5 white and 6 black balls, while...Ch. 7 - A bottle initially contains m large pills and n...Ch. 7 - Let X1,X2... be a sequence of independent and...Ch. 7 - If X1,X2,....Xn are independent and identically...Ch. 7 - If 101 items are distributed among 10 boxes, then...Ch. 7 - Prob. 7.28PCh. 7 - There are 4 different types of coupons, the first...Ch. 7 - If X and Y are independent and identically...Ch. 7 - Prob. 7.31PCh. 7 - Prob. 7.32PCh. 7 - If E[X]=1 and Var(X)=5, find a. E[(2+X)2]: b....Ch. 7 - If 10 married couples are randomly seated at a...Ch. 7 - Cards from an ordinary deck are turned face up one...Ch. 7 - Let X be the number of ls and F the number of 2s...Ch. 7 - A die is rolled twice. Let X equal the sum of the...Ch. 7 - Suppose X and Y have the following joint...Ch. 7 - Suppose that 2 balls are randomly removed from an...Ch. 7 - Prob. 7.40PCh. 7 - Let X1,... be independent with common mean and...Ch. 7 - Prob. 7.42PCh. 7 - A pond contains 100 fish, of which 30 are carp. If...Ch. 7 - A group of 20 people consisting of 10 men and 10...Ch. 7 - Let X1,X2,...,Xn be independent random variables...Ch. 7 - Between two distinct methods for manufacturing...Ch. 7 - Prob. 7.47PCh. 7 - Consider the following dice game. as played at a...Ch. 7 - Prob. 7.49PCh. 7 - A fair die is successively rolled. Let X and Y...Ch. 7 - There are two misshapen coins in a box; their...Ch. 7 - The joint density of X and Y is given by...Ch. 7 - The joint density of X and Y is given by...Ch. 7 - A population is made up of r disjoint subgroups....Ch. 7 - A prisoner is trapped in a cell containing 3...Ch. 7 - Consider the following dice game: A pair of dice...Ch. 7 - Ten hunters are waiting for ducks to fly by. When...Ch. 7 - The number of people who enter an elevator on the...Ch. 7 - Suppose that the expected number of accidents per...Ch. 7 - A coin having probability p of coming up heads is...Ch. 7 - A coin that comes up heads with probability p is...Ch. 7 - There are n+1 participants in a game. Each person...Ch. 7 - Each of m+2 players pays 1 unit to a kitty in...Ch. 7 - The number of goals that J scores in soccer games...Ch. 7 - Prob. 7.65PCh. 7 - Prob. 7.66PCh. 7 - Prob. 7.67PCh. 7 - Prob. 7.68PCh. 7 - Type i light bulbs function for a random amount of...Ch. 7 - The number of winter storms in a good year is a...Ch. 7 - In Example 5c, compute the variance of the length...Ch. 7 - Prob. 7.72PCh. 7 - The number of accidents that a person has in a...Ch. 7 - Repeat Problem 7.73 when the proportion of the...Ch. 7 - Consider an urn containing a large number of...Ch. 7 - In problem ,suppose that the coin is tossed n...Ch. 7 - Suppose that in Problem 7.75, we continue to flip...Ch. 7 - In Example 6b, let S denote the signal sent and R...Ch. 7 - In Example 6c y)2].Ch. 7 - The moment generating function of X is given by...Ch. 7 - Let X be the value of the first die and Y the sum...Ch. 7 - The joint density of X and Y is given by...Ch. 7 - Prob. 7.83PCh. 7 - Successive weekly sales, in units of $1,000, have...Ch. 7 - Show that E[(Xa)2] is minimized at a=E[X].Ch. 7 - Suppose that X is a continuous random variable...Ch. 7 - Prob. 7.3TECh. 7 - Let X be a random variable having finite...Ch. 7 - Prob. 7.5TECh. 7 - Prob. 7.6TECh. 7 - Prob. 7.7TECh. 7 - We say that X is stochastically larger than Y,...Ch. 7 - Prob. 7.9TECh. 7 - A coin having probability p of landing on heads is...Ch. 7 - Let X1,X2,....Xn be independent and identically...Ch. 7 - Prob. 7.12TECh. 7 - Let X1,X2,... be a sequence of independent random...Ch. 7 - Prob. 7.14TECh. 7 - Prob. 7.15TECh. 7 - Prob. 7.16TECh. 7 - Prob. 7.17TECh. 7 - Prob. 7.18TECh. 7 - In Example 41 t, we showed that the covariance of...Ch. 7 - Show that X and Y are identically distributed and...Ch. 7 - Prob. 7.21TECh. 7 - Prob. 7.22TECh. 7 - Prob. 7.23TECh. 7 - Show that Z is a standard normal random variable...Ch. 7 - Prove the Cauchy-Schwarz inequality, namely,...Ch. 7 - Show that if X and Y are independent, then...Ch. 7 - Prove that E[g(X)YX]=g(X)E[YX].Ch. 7 - Prove that if E[YX=x]=E[Y] for all x, then X and Y...Ch. 7 - Prob. 7.29TECh. 7 - Let X1,...,Xn be independent and identically...Ch. 7 - Consider Example 4f, which is concerned with the...Ch. 7 - An urn initially contains b black and w white...Ch. 7 - For an event A, let IA equal 1 if A occurs and let...Ch. 7 - A coin that lands on heads with probability p is...Ch. 7 - For another approach to Theoretical Exercise 7.34,...Ch. 7 - The probability generating function of the...Ch. 7 - One ball at a time is randomly selected from an...Ch. 7 - Prob. 7.38TECh. 7 - Prob. 7.39TECh. 7 - The best quadratic predictor of Y with respect to...Ch. 7 - Use the conditional variance formula to determine...Ch. 7 - Let X be a normal random variable with parameters...Ch. 7 - It follows from Proposition 6.1 and the fact that...Ch. 7 - Show that for random variables X and Z,...Ch. 7 - Prob. 7.45TECh. 7 - Verify the formula for the moment generating...Ch. 7 - For a standard normal random variable Z, let...Ch. 7 - Prob. 7.48TECh. 7 - Prob. 7.49TECh. 7 - The positive random variable X is said to be a...Ch. 7 - Let X have moment generating function M(t), and...Ch. 7 - Use Table 7.2 to determine the distribution of...Ch. 7 - Show how to compute cov(X,Y) from the joint moment...Ch. 7 - Suppose that X1,...,Xn have a multivariate normal...Ch. 7 - If Z is a standard normal random variable, what is...Ch. 7 - Suppose that Y is a normal random variable with...Ch. 7 - Consider a list of m names, where the same name...Ch. 7 - Prob. 7.2STPECh. 7 - Prob. 7.3STPECh. 7 - Prob. 7.4STPECh. 7 - Prob. 7.5STPECh. 7 - Prob. 7.6STPECh. 7 - Prob. 7.7STPECh. 7 - Prob. 7.8STPECh. 7 - Prob. 7.9STPECh. 7 - Prob. 7.10STPECh. 7 - Prob. 7.11STPECh. 7 - Prob. 7.12STPECh. 7 - Prob. 7.13STPECh. 7 - Prob. 7.14STPECh. 7 - Prob. 7.15STPECh. 7 - Prob. 7.16STPECh. 7 - Prob. 7.17STPECh. 7 - Prob. 7.18STPECh. 7 - There are n items in a box labeled H and m in a...Ch. 7 - Let X be a nonnegative random variable having...Ch. 7 - Let a1,...,an, not all equal to 0, be such that...Ch. 7 - Prob. 7.22STPECh. 7 - Prob. 7.23STPECh. 7 - Prob. 7.24STPECh. 7 - Prob. 7.25STPECh. 7 - Prob. 7.26STPECh. 7 - Prob. 7.27STPECh. 7 - Prob. 7.28STPECh. 7 - Prob. 7.29STPECh. 7 - Prob. 7.30STPECh. 7 - Prob. 7.31STPECh. 7 - Prob. 7.32STPECh. 7 - Prob. 7.33STPE
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