CIVILEN 3080 Lecture Notes - Lecture 9: Nodeb, Decision Tree Learning, Emv
2 May 2016
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A company is considering marketing a new product. Once the product is introduced, there is a 70% chance of encountering a competitive product. Option 1 (with competitive product): raise your price and see how your competitor responds. If the competitor raises price, your profit will be . If they lower the price, you will lose . Option 2 (without competitive product): raise your price or lower your price. Branches off of a chance node must add up to 100% Competitor (70%: decision node, price high. Competitor price high (50%) (conditional profit) Competitor price low (50%) -: price low. No competitor (30%: decision node, price high , price low . Node b: ev(a) = 20%(40) + 80%(10) = . If there is a competitor, you would price high and would expect . If you price low, you would expect . Price high if there is a competitor because it has the higher expected value.
