Exam 5: Extension: Decision Theory

Consider the following decision scenario: State of Nature Yes No Small \ 1 30 Medium 20 40 Med.-Large 30 45 Large 40 35 Ex-Large 60 20 *PV for profits ($000) The minimax regret strategy would be:

Two professors at a nearby university want to coauthor a new textbook in either economics or statistics. They feel that if they write an economics book, they have a 50 percent chance of placing it with a major publisher, and it should ultimately sell about 40,000 copies. If they cannot get a major publisher to take it, then they feel they have an 80 percent chance of placing it with a smaller publisher, with ultimate sales of 30,000 copies. On the other hand, if they write a statistics book, they feel they have a 40 percent chance of placing it with a major publisher, and it should result in ultimate sales of about 50,000 copies. If they cannot get a major publisher to take it, they feel they have a 50 percent chance of placing it with a smaller publisher, with ultimate sales of 35,000 copies. What is the probability that the statistics book would wind up being placed with a smaller publisher?

Which of the following would make decision trees an especially attractive decision-making tool?