The Cincinnati Bengals and the San Francisco Forty-Niners are playing in this years Super Bowl. Mr. Champion,
Question:
The Cincinnati Bengals and the San Francisco Forty-Niners are playing in this year’s Super Bowl. Mr. Champion, the owner of a Cincinnati Sporting Goods Store and a big Bengals fan, wants to order one-of-a-kind t-shirts that have the name and logo of the champion printed on them to sell immediately after the game. Therefore, he must have a good idea that the Bengals will win the game in order to make a profit. It will cost Mr. Champion about $1750 to print up the t-shirts. Without any additional information, he believes that each team has an equal chance of winning the game. If he is correct in his prediction of the winner, he could profit $3,500 from sales of the t-shirts less the cost of printing them; but if he is incorrect, he could lose the cost of printing the t-shirts. Before printing the t-shirts with the Bengals’ name and logo on them, he may decide to consult with a prominent football analyst paying him $200 for his prediction of the outcome. Assume that in similar games, 70% of the time that the Bengals win, this analyst picks them to win. Furthermore, 35% of the time that the Bengals lose, this analyst picks them to win.
Using the Precision Tree add-in, identify the strategy that maximizes Mr. Champion’s expected earnings. Formulate and solve a decision tree model.
Managerial Economics and Business Strategy
ISBN: 978-0073523224
8th edition
Authors: Michael Baye, Jeff Prince