Task1

Precisa Ltd. can invest in a new production line for its best-traded type of car tire. This has the potential to generate either loss of up to $120 000 at the end of the first year after investment or profits of up to $350 000. You are a decision analyst working with Precisa Ltd. and for the sake of deciding whether to make this investment, you need to construct the utility function of the CEO of Precisa Ltd. over the potential profits and losses. Describe a detailed dialog with the CEO of Precisa Ltd. as a decision-maker (and you as decision analyst) to elicit one of the utility quantiles over profits (the lecturer will assign the quantile index to be explored by each student for this task by Monday, 20 April 2020) at a precision of = $500.task 1, please use the following quantile index: 0.10

Task 2 Electra Ltd. is an energy provider in regional New South Wales. Mr. Doe is a landowner of a site that the company is interested to explore. Electra Ltd. offers Mr. Doe a deal of $200,000 for the exploration rights to natural gas on the site and the option for future development. If natural gas is discovered on the site and Electra Ltd. wishes to develop the site further, then Mr. Doe will be paid an additional $1,900,000. Mr. Doe believes that Electra Ltd.s interest in the site gives rise to the chance that gas is present. So, Mr. Doe may opt to develop the field independently. Mr. Doe may sign a contract with Experta & Co a consulting expert company in natural gas exploration and development, which will cost $250,000 regardless of whether gas is found on the site or not. If gas was discovered, however, Mr. Doe may earn a net profit of $6,000,000 from the site. Mr. Doe believes that the probability of finding gas on the site is 65%.

a. Construct a decision tree to describe the decision situation of Mr. Doe. Explain the logic of the tree with the right notations. b. Define and describe the monetary outcomes in the decision tree. c. Solve the decision tree to identify the strategy that maximizes Mr. Does expected net earnings d. Develop at least 5 alternative scenarios by varying each of the inputs one at a time within the range of plus or minus 20% from their base values e. Repeat steps b) and c) for each of the scenarios in d). f. Summarize your findings from d) and discuss which of the inputs appears to have the largest effect on the best solution.