Question
Flood protection decision tree You are buying a house in Fall Creek. The neighborhood is susceptible to flooding as a result of intense summer thunderstorms
Flood protection decision tree
You are buying a house in Fall Creek. The neighborhood is susceptible to flooding as a result of intense summer thunderstorms and ice jams. During the decade you plan to live in the house, you know there is a chance that a 100-year flood will occur and some chance that a 500-year flood will occur. If a 100-year flood occurs, the damages to the house will be "moderate" ($30,000) with 90% probability and "severe" ($50,000) with 10% probability. If a 500-year flood occurs, the damages to the house will be "moderate" with 70% probability and "severe" with 30% probability. Any other flooding event of smaller magnitude can be assumed to have no damages. The probability of having more than one flood during the period can also be neglected. You can take one of three actions: (1) do not get flood protection (2) install foundation vents, at a cost of $5,000, so that it can protect against moderate impacts, or (3) spend $15,000 and design the house to protect against any severe impacts.
Draw a decision tree for this problem. Fully label all branches, nodes, and outcomes with the given information.
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