Question
The Government is attempting to determine whether guest workers should be tested for a contagious disease before being allowed into the country. The decision is
The Government is attempting to determine whether guest workers should be tested for a contagious disease before being allowed into the country. The decision is made on a financial basis. Each guest worker who is allowed into the country and has the disease costs the government $100,000, but each guest worker who is allowed in and doesn't have the disease contributes $10,000 to the national economy. It is assumed that 10% of all potential guest workers have the disease. The Government may allow in all guest workers, allow in no guest workers, or test guest workers for the disease before determining whether they should be allowed in. It costs $100 to test a person for the disease; the result is either positive (disease detected) or negative (disease not detected). If the result is positive, the person definitely has the disease. However, 20% of all people who have the disease test negative. A person who does not have the disease always tests negative. The Government's goal is to maximize the expected return per guest worker. Use a decision tree to determine the optimal policy for the Government. Also determine the expected value of perfect information for this decision.
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