Exam 23: Decision Making and Risk

Consider the following to answer the question(s) below: A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below. -According to the maximin approach, the farmer should

What is the expected value of perfect information?

Consider the following to answer the question(s) below: A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below. -Suppose the Farmers' Almanac predicts the probability of a good growing season this year to be 0.75. What is the expected value of hiring teenagers?

The expected value of perfect information is

Consider the following to answer the question(s) below: An investor has $10,000 to invest for one year. The choices for the placement of the funds include stocks, bonds, and mutual funds. The outcome of the investment however, will depend on the economic climate during the year. The table presents the payoffs in dollars for three possible economic scenarios. Forecasts suggest that the probability of a slowdown is 0.25, of no change is 0.50, and of growth is 0.25. Action Economic Climate -The expected value of mutual funds is

Compute the Coefficient of Variation for each action. If the farm owner is risk averse, would the CV for each action lead to the same choice as the expected value? Explain.

Consider the following to answer the question(s) below: A land owner is considering a community development project. Even though he realizes that the current market for housing is not very favourable, he believes that there will be an influx of retirees into the area within the next five years. He is trying to decide between two alternatives: (1) building detached homes in a planned retirement community or (2) building a smaller townhouse/condominium complex. Mortgage interest rates will affect his outcomes and the applicable payoff (in $ millions) table is shown below. -Using the maximax approach, which action should the land owner choose?

Consider the following to answer the question(s) below: A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below: Action Weather Conditions -Historically the probability of rain on the day of the planned concert is 0.20. What is the expected value of an indoor concert?

Consider the following to answer the question(s) below: A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below: Action Weather Conditions -According to the maximin approach, the group should

What is the expected value of perfect information?

Consider the following to answer the question(s) below: A group is planning a fundraising concert. They must decide whether to hold the event indoors or out. The weather, specifically, whether or not it rains that day, will affect the amount raised by the event. The payoff table is shown below: Action Weather Conditions -What is the expected value of perfect information?

Consider the following to answer the question(s) below: A farm owner who grows summer vegetables (e.g. tomatoes) must decide whether to employ additional pickers this season. If he does, he could hire either migrant workers or local teenagers who need summer employment. The migrant workers are more experienced, faster, but more expensive. Although the teenagers will work for less, they are not as experienced and tend to damage plants and produce. His profits, taking into account losses from unpicked perished or damaged produce, depend on whether there is a good or bad growing season. The payoffs are shown in the table below. -Using the maximax approach, which action should the farm owner choose?