IE 417 January 18

Extra
Credit
Assignment
2011
By:
Daniel Bonneville
Nathan Duhe
Jorge Nuno
Table of Contents

Problem Statement.......................................................................................................... 2

Decision Tree .................................................................................................................. 3

Bayes Theorem ............................................................................................................ 4-6

Win QSB Input Table....................................................................................................... 7

Win QSB Output Table .................................................................................................... 8

Graphical Solution ........................................................................................................... 9

Utility ............................................................................................................................ 10

Utility Function Graph .................................................................................................... 11

Calculation of equation of the Line ................................................................................ 11

EVSI .............................................................................................................................. 12

EVPI .............................................................................................................................. 13

Sensitivity Analysis ........................................................................................................ 14

Report to Manager ........................................................................................................ 14

1
Problem Statement:

Page 772-6

Abdul has one die in his left hand and one in his right hand. One die has six dots

painted on each face, and the other has one dot painted on two of the faces and six

dots painted on each of the other four faces. Greta is to pick one die (either “left” or

“right”) and will receive $10 for each dot painted on the die that is picked. Before

choosing, Greta may pay Abdul $15, and he will toss the die in his left hand and tell her

how many dots are painted on the face that comes up. Use a decision tree to determine

how to maximize Greta’s profit. Also determine EVSI and EVPI.

2
Decision Tree:
6 $360
ixes
% All s
5 0
4
Hand
e c t Left 50 %
Not A
Se l 7
ll six
es $260
2 $310
Se
lec
tR ixes
l
igh All s 8
$360
50 %
du $310 tH
an
Ab d 5
y

Don
Pa
50 % $260
Not A
’t 9
on
ll six

’t Pla
D es
$310 e s 19 $345
$0 ll Six

y
27 0% A
1 13
Hand
e c t Left 100 %
Not A 20
P Se l $245
To ay ll Six
es
$312 ss A 11 $245
le bdu
ft Face
ha l to One on Sele
ct Ri ixe s 21
nd 17% ght H % All S $345
and 1 0 0

Don
$345 14
0% N

’t Pla
ot Al 22
Do

l Six $245
e s
n’t

10 $345

y
P

15
lay

$0
60 % All Sixes 23
$345
$312 16
.8 3 Hand 40%
% e c t Left Not A
Six Se l ll Six
on e s 24
$305 $245
fac 12
e
Sele
ct Ri
3 ght H 40 % All Sixes
$0 and
Do 25
$345
n’ 17
$305 tP 60 %
la Not A
y ll Six
$285 es
18 $0 26
$245

3
Bayes Theorem:

P(Si) P(Qj|Si) P(Si and Oj)

Prior
Prob Likelihood Joint Prob

P(E and S) =
P(S) = 0.5 P(E|S) = 0 P(S)P(E|S)

=(0.45)(0.6) =0
P(D and S) =
P(W) = 0.5 P(D|S) = 1 P(S)P(D|S)
=
(0.45)(0.4) =0.5
P(E and W) =
P(D|W) = 0.67 P(W)P(E|W)

=(0.55)(0.3) =0.167
P(D and W) =
P(E|W) = 0.33 P(W)P(D|W)

=(0.55)(0.7) =0.333

4
P(Oj) P(Si|Oj)
Probability of outcome Posterior Prob.

P(E) = P(E and S)+P(E P(S|E) = P(S and

and W) E)/P(E)
= =
0.27+0.165 =0.167 0.27/0.435 = =0.000
P(D) = P(D and S)+P(D P(W|E) = P(W and
and W) E)/P(E)
= =
0.385+0.18 =0.833 0.165/0.435 =1.000
P(S|D) = P(S and
D)/P(D)
=
0.18/0.565 =0.600
P(W|D) = P(W and
D)/P(D)
=
0.385/0.565 =0.400

Explanation

Probability of the die being Good, given that you rolled a 1 is 0 %

Probability of the die being Bad, given that you rolled a 1 is 100
%

Probability of the die being Good, given that you rolled a 6 is 60

%

Probability of the die being Bad, given that you rolled a 6 is 40 %

TABLE :
For the left hand
S Good
W Bad
E Not rolling a 6
D Rolling a 6

5
Explanation

• We need to find the probability that the dice is good given that the dice
landed on a 6. Which can also be written as P(GOOD|6)

• Given:

• P(GOOD)=1/2 (Dice with all sixes)

• P(BAD)=1/2 (Dice with 4 sixes)

• P(6|GOOD)=1 (Lands on 6 given it’s the good die)

• P(1|GOOD)=0 (Lands on 1 given it’s the good die)

• P(6|BAD)=4/6 (Lands on 6 given it’s the bad die)

• P(1|BAD)=2/6 (Lands on 1 given it’s the bad die)

Calculations:

• P(GOOD|6) = P(6|GOOD) P(GOOD) .

P(6|GOOD) P(GOOD) + P(6|BAD) P(BAD)

P(GOOD|6) = (1) (1/2) = 3/5

(1)(1/2) + (4/6)(1/2)

So the probability that the die is good given that it landed on 6 is 3/5 or 60%.

• P (BAD|6) = P(6|BAD) P(BAD) .

P(6|BAD) P(BAD) + P(6|GOOD) P(GOOD)

P(GOOD|6)= (4/6) (1/2) = 2/5

(4/6)(1/2) + (1)(1/2)

So the probability that the die is bad given that it landed on a 6 is 2/5 or 40%.

6
Win QSB Input Table

7
WinQSB Output Table of Solution:

8
Graphical Solution:

9
Utility:

Utility of Lowest Profit = 0

Utility of Highest Profit = 1

Lowest Profit = -$15.00

Highest Profit = +$360.00

 Utility of Each Outcome

◦ Utility(360)= 1

◦ Utility(260)= 0.733

◦ Utility(345)= 0.96

◦ Utility(245)= 0.693

◦ Utility(-15)= 0

◦ Utility(0) = 0.04

 Utility of Expected Values

◦ Utility(310)= 0.866

◦ Utility(312)= 0.872

10
Utility Function Graph for Risk Neutral Person:

1.2

0.8

0.6
Series1
0.4

0.2

0
-100 0 100 200 300 400
-0.2

Calculation of Equation of the Line:

Slope= (y2-y1)/(x2-x1) = (1-0)/(360-(-15)) = 1/375

U = 1/375x+b

1 = (1/375)*(360) + b

b = .04

U = (1/375)x + .04

Utility of Expected Value ($310)= (1/375)*(310) + .04 = .867

11
EVSI Calculation:

12
EVPI Calculation:

13
Sensitivity Analysis:

This cannot be performed because all probabilities are fixed values. The

information is not subjective and can therefore not be manipulated.

Report to Manager:

Dear Manager,

The highest expected profit from this venture is $310.00. This outcome results

from choosing not to pay Abdul the $15.00, and then choosing for Abdul to throw the die

in his left hand. This expected profit is not guaranteed, but it is the average profit for

this situation after numerous trials. This course of action could return as much as

$360.00 in profit or as low as $260.00 depending on which die is rolled. Our secondary

course of action would be to pay Abdul to roll the die in his left hand and tell us how

many dots are painted on the side that comes up. The expected profit from this course

of action is $296.80. From this point, if he tells us there is one dot on the face, then we

should choose for him to roll the die in his right hand because we will know which die

has the most dots. This would yield a profit of $345.00. If he tells us that there are six

dots on the face our expected profit is $305.00 because our chances of choosing the

correct die have not improved very much. Overall the best choice is to not pay Abdul. If

you have any further questions please let me know?

14