BU275 Lecture Notes - Lecture 20: Expected Value Of Perfect Information, Prior Probability, Decision Tree Learning
Document Summary
Bu275 lecture #20: decision analysis (part 1) (continued) If they purchase an apartment building, the profit at the end of year10 is 2000k if there is population growth over the 10 years (with probability 0. 6). If they purchase land, the company will hold the land and see if there is population growth (with probability 0. 6) or not (with probability 0. 4) in the first 3 years. If there is population growth, the company can build apartments (cost 800k) or sell land (profit 450k) at the beginning of year4. If there is no population growth, the company can develop the land commercially (cost. 600k) or sell land (profit 210k) at the beginning of year4. With no other information, there is a 50/50 chance (prior probability) of striking oil. If a well is found, profit will be k. If the site is dry, loss will be k. Drill or not: the company is considering a geological survey for k.
