COMM 207 Lecture 6: decision theory example
Document Summary
A real estate developer is proposing to develop a condominium complex on an exclusive parcel of lakefront property. The developer wishes to choose among three possible options: Profitability of each depends on the level of demand after completion the developer considers only two possible levels of demand: high and low; Choose between building a large, medium, or small complex based on the beliefs about whether the demand for condominium units will be high or low. If a small complex is built, the worst possible payoff is million. If a medium complex is built, the worst possible payoff is million. If a large complex is built, the worst possible payoff is - million. Since the maximum of these worst possible payoffs is million, the developer should choose to build a small complex. If a small complex is built, the best possible payoff is million. If a medium complex is built, the best possible payoff is million.
