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 Advertising strategies with information. The company from Exercises 13, 21, and 23 has the option of hiring an economics consulting firm to predict consumer confidence. The company has already considered that the probability of rising consumer confidence could be as high as 0.70 or as low as 0.40. They could ask the consultants for their choice between those two probabilities, or they could just pick a probability in the middle, such as .50, and choose a strategy based on that.

(a) Draw the decision tree including the decision to hire the consultants.

(b) Would the consultants’ information be useful? Explain.

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(c) The company thinks there’s an equal chance of either of the consulting alternatives being what the consultants report. What’s the value to the company (per customer) of the extra information?

Q1276;

Energy investment with information. The company in Exercises 14, 22, and 24 could send a team to Saudi Arabia to obtain additional information about the probabilities that oil will increase or decrease in price. They hope that the fact-finding trip would choose between the two alternatives considered in Exercise 22, or they could just estimate that the probabilities are equal.

(a) Make a decision tree for these decisions.

(b) Should the company send the fact-finding trip? Explain.

(c) The company’s experts estimate that if they send the fact-finding mission, there’s a 70% chance that they’ll conclude there’s a 0.4 probability of higher oil prices. What would the value of the additional information be to the company?

 
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