We are thinking of filming the Don Harnett story. Weknow that if the film is a flop, we will lose $4 million, andif the film is a success, we will earn $15 million. Beforehand,we believe that there is a 10% chance that the Don Harnettstory will be a hit. Before filming, we have the option ofpaying the noted movie critic Roger Alert $1 million for hisview of the film. In the past, Alert has predicted 60% of allactual hits to be hits and 90% of all actual flops to be flops.We want to maximize our expected profits. Use a decisiontree to determine our best strategy. What is EVSI? What isEVPI?
We are thinking of filming the Don Harnett story. Weknow that if the film is a flop, we will lose $4 million, andif the film is a success, we will earn $15 million. Beforehand,we believe that there is a 10% chance that the Don Harnettstory will be a hit. Before filming, we have the option ofpaying the noted movie critic Roger Alert $1 million for hisview of the film. In the past, Alert has predicted 60% of allactual hits to be hits and 90% of all actual flops to be flops.We want to maximize our expected profits. Use a decisiontree to determine our best strategy. What is EVSI? What isEVPI?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter9: Decision Making Under Uncertainty
Section9.3: Single-stage Decision Problems
Problem 6P
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Question
We are thinking of filming the Don Harnett story. We
know that if the film is a flop, we will lose $4 million, and
if the film is a success, we will earn $15 million. Beforehand,
we believe that there is a 10% chance that the Don Harnett
story will be a hit. Before filming, we have the option of
paying the noted movie critic Roger Alert $1 million for his
view of the film. In the past, Alert has predicted 60% of all
actual hits to be hits and 90% of all actual flops to be flops.
We want to maximize our expected profits. Use a decision
tree to determine our best strategy. What is EVSI? What is
EVPI?
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