Decision Trees

Ramana Naidu has been in the movie business in Andhra for the past 10 years.He buys the distribution rights from the film producers using his relationship with many of them.He has the option of sub-leasing the rights to secondary distributors or to keep rights to himself and distribute to theatres on his own.The income from the distribution varies based on the number of weeks that the movies run in the theatres. Based on the duration of running, the movies industry categorizes the movies as "Quickies (short duration)" or "Longies (long duration)".Unfortunately, whether a movie turns out to be a Quickie or Longie appears to be a random occurrence.He has estimated his profits against his options as follows:

Option

Category

Longie

Quickie

Keep the rights

40

10

Lease the rights

20

30

1.Which is the best option for Naidu, given that 40% of the movies are Quickies?

2.Naidu wanted to know if there could be some way of obtaining advance information regarding the duration of the running (whether the movie will be a Quickie or Longie). He wondered what would be the maximum possible value of such information. Help him by calculating the maximum possible value of such information (EVPI).

Naidu came to know that a company called Swetha Unlimited Services India Limited (SUSIL) developed a mathematical model which can predict, albeit with some error, the duration of the running of any movie before its release.The model uses various variables such as type of actors, their current value and form, standing and combination, running of previous movies with same or similar actors, technical aspects, music composition, novelty of the story, director rating etc.Naidu collected sufficient data regarding SUSIL's predictions.SUSIL categorizes the predictions of their model as "Positive" or "Negative". They have estimated that the chances of "Longie" is 80 percent if the response is "Positive". They have also estimated that the chances of "Positive" and "Negative" are equal.

Should Naidu purchase the predictions from SUSIL? What is this information worth to Naidu? How efficient is the Process followed by SUSIL?