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. Why will these two probabilities not appear on the decision tree? Which probabilities will be on the decision tree?

BuyFind

Practical Management Science

6th Edition
WINSTON + 1 other
Publisher: Cengage,
ISBN: 9781337406659
BuyFind

Practical Management Science

6th Edition
WINSTON + 1 other
Publisher: Cengage,
ISBN: 9781337406659

Solutions

Chapter
Section
Chapter 9, Problem 70P
Textbook Problem

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. Why will these two probabilities not appear on the decision tree? Which probabilities will be on the decision tree?

Expert Solution

Want to see the full answer?

Check out a sample textbook solution.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.

Chapter 9 Solutions

Practical Management Science
Ch. 9.5 - In Example 9.2, Acmes probability of technological...Ch. 9.5 - In Example 9.2, the fixed costs are split 4...Ch. 9.5 - In Example 9.2, use a two-way PrecisionTree...Ch. 9.5 - Starting with the finished version of the file for...Ch. 9.5 - Starting with the finished version of the file for...Ch. 9.5 - Suppose you are tested to see if you have a rare...Ch. 9.5 - In Example 9.2, a technological failure implies...Ch. 9.5 - The model in Example 9.3 has only two market...Ch. 9.6 - Using the finished version of the file for Example...Ch. 9.6 - You saw in Example 9.4 how Acme prefers to abandon...Ch. 9.6 - Starting with the finished version of Example 9.2,...Ch. 9 - The SweetTooth Candy Company knows it will need 10...Ch. 9 - Carlisle Tire and Rubber, Inc., is considering...Ch. 9 - A local energy provider offers a landowner 180,000...Ch. 9 - An investor with 10,000 available to invest has...Ch. 9 - Two construction companies are bidding against one...Ch. 9 - You have sued your employer for damages suffered...Ch. 9 - Consider a population of 3000 people, 1400 of whom...Ch. 9 - Yearly automobile inspections are required for...Ch. 9 - Ford is going to produce a new vehicle, the...Ch. 9 - A nuclear power company is deciding whether to...Ch. 9 - The Indiana University basketball team trails by...Ch. 9 - Your company needs to make an important decision...Ch. 9 - If your company makes a particular decision in the...Ch. 9 - In the previous question, suppose you have the...Ch. 9 - In a classic oil-drilling example, you are trying...Ch. 9 - Your company has signed a contract with a good...Ch. 9 - You must make one of two decisions, each with...Ch. 9 - A potentially huge hurricane is forming in the...Ch. 9 - It seems obvious that if you can purchase...Ch. 9 - Insurance companies wouldnt exist unless customers...Ch. 9 - You often hear about the trade-off between risk...Ch. 9 - Can you ever use the material in this chapter to...

Additional Business Textbook Solutions

Find more solutions based on key concepts
MVA Over the years, McLaughlin Corporation's stockholders have provided 35,000,000 of capital, when they purcha...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

What is the purpose of the strategic IT plan?

Accounting Information Systems

What is a focused value stream?

Cornerstones of Cost Management (Cornerstones Series)