1.A year-ago a major potato producer suffered serious losses when a virus affected the crop at the company's North Holt farm. Since then, steps have been taken to eradicate the virus from the soil and the specialist who directed these operations estimates, on the basis of preliminary evidence, that there is a 80% chance that the eradication program has been successful.

Question: The manager of the farm has to decide on his policy for the coming season and he has identified two options:(4a) Does he could go ahead and plant a full crop of potatoes. If the virus is still present, an estimated net loss of $40 000 will be incurred. However, if the virus is absent, an estimated net return of $120 000 will be earned.(4b) Does he could avoid planting potatoes at all and turn the entire acreage over to an alternative crop. This would almost certainly lead to net returns of $50 000.

2.An engineer who works for a company which produces equipment for the food-processing industry has been asked to consider the development of a new type of processor and to make a recommendation to the company's board. Two alternative power sources could be used for the processor, namely gas and electricity, but for technical reasons each power source would require a fundamentally different design. Resource constraints mean that the company will only be able to pursue one of the designs, and because the processor would be more advanced than others which have been developed it is by no means certain that either design would be a success. The engineer estimates that there is a 75% chance that the electricity-powered design would be successful and only a 60% chance that the gas- powered design would be successful.

After considering this tree the engineer realizes that if either design failed then the company would still consider modifying the design, though this would involve more investment and would still not guarantee success. He estimates that the probability that the electrical design could be successfully modified is only 30%, though the gas design would have an 80% chance of being modified successfully.

Question: Use the given information to construct a decision tree continuation and show the probabilities.

1.With disjunctive events this leads to a tendency to underestimate the probability 0.16 Since the estimation of risk often involves probability assessments for disjunctive events, this bias can be a serious concern.

i. Response: This is an example of

2.Decision making, anchoring can be a problem in the estimation of costs, payoffs, project durations and probabilities. Forecasts that are used in the decision process may be biased by forecasters anchoring on the current value and making insufficient adjustment for the effect of future conditions.

ii. Response: This is an example of

3.Overconfidence is a particular concern when probability distributions have to be estimated. There is a danger that when estimating maximum and minimum possible levels of quantities like costs or sales, decision makers will estimate ranges which are too narrow to include all possibilities.

iii. Response: This is an example of

4.People tend to overestimate the probability of conjunctive events occur- ring because they anchor on the probability of one of the elementary events and make insufficient adjustment.) Response: This is an example of