Making

5

Let us consider a simple example. A contractor has to

decide whether to hire concrete pumping equipment

in order to complete a foundation work tomorrow. If

he

does

not

hire

the

equipment,

work

will

be

delayed and he will suffer a loss of $10 000. if he hire

the

equipment,

he

anticipates

two

possible

outcomes, depending on the weather;6

1.

If the weather is fine, the concrete pumping

equipment will be fully utilized. The concreting

will be completed and he will gain a profit of

$20,000 after paying the rent for the equipment.

2.

If there is rain, the equipment cannot function

and the work will be delayed. The contractor will

have to pay $10,000 rent and he will suffer a loss

of $10,000 for the delay of work.

what will be his best decision given that there is 50% chance of rain tomorrow base on expected monetary value? Use a decision tree to decide on the best choice.