A major movie studio has just completed its latest epic, a musical comedy about the life of Attila the Hun. Because the movie is different (no sex or violence), the studio is uncertain about how to distribute it. The studio executives must decide whether to release the movie to North American audiences or to sell it to a European distributor and realize a profit of $12 million. If the movie is shown in North America, the studio profit depends on its level of success, which can be classified as excellent, good, or fair. The payoffs and the prior subjective probabilities of the success levels are shown in the accompanying table.

Another possibility is to have the movie shown to a random sample of North Americans and use their collective judgment to help the studio make a decision. These judgments are categorized as €œrave review,€ €œlukewarm response,€ and €œpoor response.€ The cost of the sample is $100,000. The sampling process has been used several times in the past. The likelihood probabilities describing the audience judgments and the movie€™s success level are shown next. Perform a preposterior analysis to determine what the studio executives should do.

Transcribed Image Text:

Success Level Payoff ($ Million) Probability Excellent .5 33 .3 12 Good Fair -15 .2 Judgment Rave Lukewarm Poor Success Level Review Response Response Excellent .8 .1 .1 Good .5 .3 .2 Fair .4 3 .3