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A famous news anchor is tired of political reporting and decides to think seriously about running for the U.S. Senate, estimating the probability of
A famous news anchor is tired of political reporting and decides to think seriously about running for the U.S. Senate, estimating the probability of being elected as 60%. Campaign expenditures are not a problem, but the gain or loss of prestige could be. The anchor estimates that, if prestige can be quantified, a win would be worth 100 "prestige points" and a loss would be represented by -50 "prestige points." A. Draw the decision tree. What should be done? B. How many prestige points should the anchor be willing to "spend" in order to know now how the election would turn out? C. There is no shortage of political advisors who would love to have this anchorperson for a client. One in particular will charge $15,000 to offer an opinion of whether or not the race could be won. In the past, this advisor has given a positive opinion 75% of the time when the election was won, and a positive opinion 10% of the time when the race was lost. Draw the appropriate decision tree. What should the candidate do? What would the dollar amount of a "prestige point" have to be in order for the anchor to consider hiring this advisor? Show your calculations.
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