Reconsider Hugh Liedtke’s decision as diagrammed in Figure 4.2. Note that three strategies are possible: (1) accept $2 billion, (2) counteroffer$5 billion and then accept $3 billion if Texaco counteroffers, and (3) counteroffer $5 billion and then refuse $3 billion if Texaco counteroffers. Suppose that Liedtke is unsure about the probabilities associated with the final court outcome. Let p = P(10.3 Billion) and q = P(5 Billion) so that 1– (p = q) = P(0 Billion). Create a two-way sensitivity graph that shows optimal strategies for Liedtke for possible values of p and q. If Liedtke thinks that p must be at least 0.15 and q must be more than 0.35, can he make a decision without further probability assessment?

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Settlement Amount ($ Billion) Accept $2 Billion Texaco Accepts $5 Billion (0.17) 5 (0.2) 10.3 Final Court (0.5) 5 Decision Counteroffer Texaco Refuses Counteroffer (0.50) (0.3) $5 Billion (0.2) 10.3 Техасо (0.5) Final Court Counteroffers $3 Billion (0.33) Decision Y KRefuse (0.3) Accept $3 Billion