BU275 Chapter Notes - Chapter 9: Expected Value Of Perfect Information, Soil Contamination
Document Summary
Site development problem: a developer owns some land zoned for either residential or mixed use commercial development. But, she is worried about soil contamination (kitchener has many old industrial sites: we estimate 20% of sires are contaminated. If it was (cid:272)o(cid:374)ta(cid:373)i(cid:374)ated, the(cid:455) issued (cid:858)u(cid:374)safe(cid:859) report 90% of the ti(cid:373)e. If it was (cid:374)ot (cid:272)o(cid:374)ta(cid:373)i(cid:374)ated the(cid:455) issued (cid:858)u(cid:374)safe(cid:859) report o(cid:374)l(cid:455) 20: we have enough info to build the probability tables. Marginal probability = 0. 18 + 0. 16 = 0. 34. Marginal probability = 0. 02 + 0. 64 = 0. 66. 0. 970: both marginal probabilities must add to 1, they are the probability of receiving different report tupes, and go on the big tree, the best decision in the unsafe tree is retail, with an dev of 994000. If we get a safe report we should build housing, and if we get an unsafe report we should also build housing: to get the value of the report.