Question
Our movie studio is considering filming the Don Harnett story. We know that if the film is a flop, we will lose $4 million, and
"Our movie studio is considering filming the Don Harnett story. We know that if the film is a flop, we will lose $4 million, and if the film is a success, we will earn $15 million. Beforehand, we believe that there is a 10% chance that the Don Harnett story will be a hit. Before filming, we have the option of paying the noted movie critic Roger Alert $1 million to pre-review the script and predict whether the film will be a hit or flop. Of past films that Alert has pre-reviewed and that turned out to be hits, he has predicted a hit in 60% of the cases. Of past films that he has pre-reviewed that turned out to be flops, he has predicted a flop in 90% of the cases."
- Use a decision tree to find the highest-EMV course of action the movie studio can take regarding the Don Harnett story. State the policy and its EMV.
- What is the EVSI of hiring Roger Alert to pre-review the film?
- What is the EVPI in this situation?
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