MACROECONOMICS-W/MINDTAP
15th Edition
ISBN: 9781305361409
Author: Gwartney
Publisher: CENGAGE L
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Chapter ST1, Problem 2CQ
To determine
The effects of a shift in the composition of the federal budget on the standards of living.
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In a classic oil-drilling example, you are trying to decide whether to drill for oil on a field that might or might not contain any oil. Before making this decision, you have the option of hiring a geologist to perform some seismic tests and then predict whether there is any oil or not. You assess that if there is actually oil, the geologist will predict there is oil with probability 0.85 . You also assess that if there is no oil, the geologist will predict there is no oil with probability 0.90. Please answer the two questions below, as I am trying to ensure that I am correct.
1. Why will these two probabilities not appear on the decision tree?
2. Which probabilities will be on the decision tree?
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