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.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 37P

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Concept explainers

Forecasting in Business

Forecasting is the process of predicting the future based on the past and the present data and circumstances. In other words, forecasting is the act of making a detailed analysis of future events based on the decisions made in the past as well as the present. Forecasting plays a very important role in operational management as it helps in planning and decision-making. It is not only important for the success of a business but also contributes to individual growth and success. Many business organizations or companies have failed due to the shortcomings of their forecasting.

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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