CH 17 Questions

17-2

In the final round of a TV game show, contestants have a chance to increase their current winnings of $1 million to $2 million. If they are wrong, their prize is decreased to $500,000. A contestant thinks his guess will be right 50% of the time. Should he play? What is the lowest probability of a correct guess that would make playing profitable?

17-6

The HR department is trying to fill a vacant position for a job with a small talent pool. Valid applications arrive every week or so, and the applicants seem to bring different levels of expertise. For each applicant, the HR manager gathers information by trying to verify various claims on resumes, but some doubt about fit always lingers when a decision to hire or not is to be made. What are Type I and II decision error costs? Which decision error is more likely to be discovered by the CEO? How does this affect the HR manager’s hiring decision?

G17-1

Describe a decision your company has made when facing uncertainty. Compute the expected cost and benefits of the decision. Offer advice on how to proceed. Compute the profit consequences of the advice.