PROBLEMS Group A 11 A customer has approached a bank fora $50,000 onc- year loan at 12% interest. 1 the hank does not approve the loan, the $50,000 wil be invested in bonds that carn a 6% snnual return, Without further information, the bank feels that there is a 49% chance that the customer will totally ‘default onthe loan. Ifthe customer totally default, the ‘bank loses $50,000. At a cost of $500, the bank can thoroughly investigate the customer's eredit record and supply a favorable or unfavorable recommendation. Past ‘milion at Diablo and $20 million at Roy Rogers City. the ‘company builds at Diablo, however, and an earthquake ‘occurs at Diablo during the next five yeas, construction willbe terminated and the company will lose $10 million (Gnd will stil have to build a power plant at Roy Rogers City) A prior, the company believes thee isa 20% chance that an earthguake will occur at Diablo daring the next five years. ForSI million, a geologist canbe hired to analyze the fault structure at Diablo Canyon. He will ether predict that san earthquake will occur or that an earthquake will not ‘occur. The geologists past record indicates that he will predict an earthquake on 95% of the occasions for which an ‘carhquake will occur and no earthquake on 90% of the ‘ecasons for which an earthquake will not occur. Should the power company hire the geologist? Also find EVSI and EVPL 3. Farmer Jones must determine whether to plant com or heat. IFhe plants com and the weather is warm, he earns $8,000; fhe plants corm andthe weather is cold, be earns $5,000. If he plants wheat and the weather is warm, he ‘cans $7,000; if he plans wheat andthe weather is cold he ‘cams $6,500 Inthe past, 40% ofall yeas have been cold and 6O% have been warm. Before planting, Jones can pay $600 for an expert weather forcast. Ifthe year i actually ‘old there is « 90% chance that the Forecaster will predict ‘cold year If the year is actually warm, thre is an 80% ‘chance thatthe forecaster will predict a warm year. How ‘can Jones maximize his expected profits? Also find EVSI snd EVPL 4 The NBS television network carns an average of ‘400,000 from a hit show and loses an average of $100,000 ‘on 2 lop. Of all shows reviewed by the network, 25% turn ‘out to be hits and 75% tum out tobe flaps. For $40,000, ‘market research firm will have an audience view a pilot of a prospective show and give ils view about whether the show will be a hit ora lop. Ifa show is actualy going to ‘bea hit there is 290% chance thatthe market research firm will predict the show to be a hit Ifthe show is actually ing tobe a flop, there is an 80% chance thatthe market ‘esearch firm will predict the show tobe a flop. Determine Ihow the network can maximize its expected profits. Also find EVSt and EVPI 5 We are thinking of filming the Don Hamett story. We [know that ifthe film isa flop, we will lose $4 millon, and ifthe film sa success, we willearn $15 milion. Befochand, ‘we believe that there i a 10% chance tht the Don Harnett ‘Story will bea hit. Before filming, we have the option of ying the noted movie crite Roger Alert $1 millon for his ‘view of the film. Inthe past Alert as predicted 60% ofall actual histo be its and 90% ofall actual ops to be flops. ‘We want to maximize our expected profits. Use a decision ‘uce to determine our best strategy. What is EVSI? What is Ever? Group B 5 Abdul has one dic in is left hand and one in is right Ihand. One die has six dots painted on each face, andthe ‘other has one dot painted on two of the faces and six dots painted on each ofthe other four faces. Greta iso pick one dlc (ether “lft” or “right” and will reeive $10 for cach ‘ot painted onthe di that is picked. Before choosing, Greta ‘may pay Abdul S15, and he wil toss the die in his left hand fd fell her how many dots are painted on the face that ‘comes up. Use a decision ree to determine how to maximize (Greta profit Also determine EVSI and EVPL. 17 Pat Sajork: has two dravers. One drawer contains thre {god coins, and the other contine one gold coin and 6x0 Silver coins. We are allowed to choose one drawer, and we ‘will be paid $500 for each gold coin and $100 for each silver coin in that drawer. Before choosing, we may pay Pat ‘$200, and he will draw a randomly selected coin (each of the six coins has an equal chance of being chosen) and tll lus whether itis gold or silver. Fr instance, Pat may say that Ihe drew 2 gold coin from drawer 1. Should we pay Pat ‘S200 What is EVSI? What is EVPL? 2 Joc owns a coin that is cither fair coin ora two-headed ‘coin, Imelda believes that there isa! chance thatthe coin is twosheaded. She must guess what Kind of coin Joe has. If she guesses correctly, she pays Joe nothing, but if she ‘guesses incorrectly, she must pay Joz $2. Before guessing, ‘she may pay 30g to sce the result oF single coin toss heads fo tals) Determine how Imelda should minimize her ‘expected loss. Algo determine EVSI and EVPIPROBLEMS Group A 1 Find the value andthe optimal strategies for the two pereon zero-sum game in Tale 15, 2. Pg I wis ante ter | a2 on 2 ip of Fawr Br Swing cpt ppt gers yer PENS pyr? what has wien, Mayer my ic ll there ing wh i wir ting thal pay mat py past 2510 fasely sctses of hing: fer U colle 85 rom Finger 2 Ifpinger Tels tet nd pene? gos at Paver I at tl heath, thenpinr mst py 6 Payer 2 I player Iw nd per? des rt gs that Baer ba ok payer | wine 9 om payers tee {hela ofthis game and cach plier opal stg 2. Find th value nd opal stg forthe tc-pen ev-sam game hb 41 For ample 3, show tht if er | deve fom bar rsa satey dn ner? cat ere tht lege I ras ‘Respected van ates an esas (ete ane, 5. Tor Example 3 show tht pliner 2 devises rom hor Spiel sty hen player an ese ht she cas an ped roval tro than he at oo pone. {Teocempsig fmm silts dtemine hr ‘nach of spect rode, The tal oft red the {worn ayy 81.00 Tn Teco ee xe fu figr 2 a ow ton mL samea pot ef 310 fe Tell ew and Ss ihe en rs pro Sih tesm fe ‘bed wiigh mit emo, then sof 0: afr Ts el sh le fon Peel othe fT te col $00 Fhe {Slt and opal nog as sens sm ge 7 Mo and. Bo each have a quarer and pemy Sima ach dapay oni be coins atc, then Mo nin bot fom fy dnt match thon Bo ns th coin: Decmine opal sage for is ame Group B 8 State University is about play Ivy Callas fer the tate {cans churpionsup. The Stat tam hs te players (A and By and the ivy foam has tre players (Xs and 7) The followin facts are known shout he players eatve abies: raeLe 15 bas 203 X wi ays beat B;¥ wil says Beat A; wl aay ‘eat Z In oer att cach ayer has 2 chance of ‘rnnng. Uelore State plas Iv. {Eten who wl py st ie sgl. The ny cou ater ehosng whic ose will Finca) waco tre who ml iy fogs Sid seed single Aue hat cach coach tt Imucmze the etpckd amber of mgs watcher won Dy theta Use ae theo eter ana sap carck a etl oe yume toe ea Consider a two-person zro-sum game withthe revard Ina n Tble 17 Sapose this ge des et ave S428 point Show that ie opal sey forthe Tw ‘player is to play the first row a fraction (d — ca + d BS ofthe mead the opin strategy Forte clin ro ply theft clan fraction (2 ~ Oya bereeyreras om 10. Consider the flowing implied verion of foot, On each play the offense chooses fo run or pass. At the Sine tine the dfenge choses pig atndeke eps Sore The numberof yards alned 9 each ply termed by tnerovad rates lable 1 The eek ‘gcd to maximize he verge yds pint per iy ‘2 Use Probl 9 to show tht the offease tou ran font7 ete time. 1 Suppme ot be eveness of ps gsi the fun dace improves Une ie oul f Pcie 8 fo ‘Sew th the offioe shuld pss le! Cn you give “Spina for ths snge peeomenont 11 Us the idea of dominated strategies to detemine {aia sates forth read ac arabe 1 yas.e 17 yAgLe 19 “3-10 “0 2 a2 7 3 wo 27 0 07 7 0 ot 2 7-1 -10