In the Following Decision Problem, You Are Considering Two Business $\mathrm{P}($

Essay

In the following decision problem, you are considering two business opportunities at the end of your business education. One is a safe but less lucrative business (Bus-A) and the other a risky but attractive business (Bus-B). The expected five-year revenue differs significantly depending on boom, stagnation or recession in the national economy. The following table gives the payoff matrix and probabilities.

(A) Suppose that you have an economist friend, who can look at a crystal ball and advise you. He predicts two states for the economy, namely "good" or "bad" for the economy during your planning horizon. The conditional probabilities of the state of economy and the random events related to your business are given below.
$\mathrm{P}($ good $/ \mathrm{s} 1)=0.7, \mathrm{P}(\operatorname{good} / \mathrm{s} 2)=0.35$ , and $\mathrm{P}(\operatorname{good} / \mathrm{s} 3)=0.1$
$\mathrm{P}(\mathrm{bad} / \mathrm{s} 1)=0.3, \mathrm{P}(\mathrm{bad} / \mathrm{s} 2)=0.65$ , and $\mathrm{P}(\mathrm{bad} / \mathrm{s} 3)=0.9$
Find the revised probabilities.
(B) Draw the decision tree and find the best decision, assuming that your friend will charge you $\$ 5000$ .
(C) What is EVSI?
(D) What is the efficiency of the sample information?