Question
Mr. Clinton is considering his job career. He has two choices: preparing CPA vs. preparing MBA in the US. If he chooses CPA, the chance
Mr. Clinton is considering his job career. He has two choices: preparing CPA vs. preparing MBA in the US. If he chooses CPA, the chance of passing the score is 40% with a return of $70k and the chance of failing the paper is 60% with a return of $30k. If Mr. Kim chooses MBA, the chances of earning MBA and failing to earn MBA are 50%: 50%.
If he fails MBA, the return would be $40k. If he earns MBA, he has two further choices: preparing Ph.D. vs. getting a job immediately without Ph.D. Upon preparing Ph.D., the chance of earning Ph.D. is 30% with a return of $120k and the chance of failing to earn Ph.D. is 70% with a return of $50k. If Mr. Kim gets a job immediately without applying Ph.D., the return would be $100k.
(a) Illustrate the above decision situation using a decision tree.
(b) You can identify three strategies from the problem. Explain these three strategies.
(c) Create risk profiles and cumulative risk profiles for the above three strategies. Is there a deterministic or stochastic dominance relationship?
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