
FIRST COURSE IN PROBABILITY (LOOSELEAF)
10th Edition
ISBN: 9780134753751
Author: Ross
Publisher: PEARSON
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Chapter 9, Problem 9.2STPE
(a)
To determine
To find:
The
(b)
To determine
To find:
The probability that at least one arrived in the first
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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 9 Solutions
FIRST COURSE IN PROBABILITY (LOOSELEAF)
Ch. 9 - Customers arrive at a bank at a Poisson rate ....Ch. 9 - Cars cross a certain point in the highway in...Ch. 9 - Suppose that in Problem 9.2, AI is agile enough to...Ch. 9 - Suppose that 3 white and 3 black balls are...Ch. 9 - Consider Example 2a. If there is a 50-50 chance of...Ch. 9 - Compute the limiting probabilities for the model...Ch. 9 - A transition probability matrix is said to be...Ch. 9 - On any given day, Buffy is either cheerful (c),...Ch. 9 - Suppose that whether it rains tomorrow depends on...Ch. 9 - A certain person goes for a run each morning. When...
Ch. 9 - Prob. 9.11PTECh. 9 - Determine the entropy of the sum that is obtained...Ch. 9 - Prove that if X can take on any of n possible...Ch. 9 - A pair of fair dice is rolled....Ch. 9 - A coin having probability p=23 of coming up heads...Ch. 9 - Prob. 9.16PTECh. 9 - Show that for any discrete random variable X and...Ch. 9 - Prob. 9.18PTECh. 9 - Events occur according to a Poisson process with...Ch. 9 - Prob. 9.2STPECh. 9 - Prob. 9.3STPECh. 9 - Prob. 9.4STPECh. 9 - Prob. 9.5STPE
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