Question
Penguin received a science fiction novel written by a young author. After reading the book, theeditor estimated that if the book becomes successful, the company
Penguin received a science fiction novel written by a young author. After reading the book, theeditor estimated that if the book becomes successful, the company will gain a profit of $750,000. Ifunsuccessful, Penguin will lose
$250,000. Based on the past experience, the novel will be successful with probability 0.65.
To decide on accepting or rejecting the novel for publication, the editor is considering sending out the novel for review. A review process results in either a satisfactory (S) or unsatisfactory (U) evaluation of the novel. If the book is going to be successful, the review result will suggestsatisfactory with probability 0.8. However, if it is going to be unsuccessful, the review process willsuggest it to be unsatisfactory with probability 0.5. Penguin wants to find the best decision strategy. Draw a decision tree for thisproblem. Show the timeline of the events (decisions and states of nature) by providing the proper sequence of those events. What probabilities are given in this problem? What probabilities should go on the tree? Just mention them (no need to compute or solve anything).
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