Stats Report
Case Study: Property Purchase Strategy
Table of Contents
Main Report 3
Introduction3
Decision Analysis 3
Increasing the expected payoff 5
Conclusion 5
Appendix6
Decision Tree6
Calculation of probabilities 7
Calculation of expected payoff8
Relationship between the expected payoff and amount of bid9
Introduction
Decision analysis is an integral and powerful component in the decision making process, and can be used to determine the optimal decision alternative according to the criterion set by the business by objectively assessing the complicating factors and underlying issues of each decision. In this case study, the analysis of the problems faced by Oceanview Development Corporation will start off with a decision tree showing the logical sequence of the decision problem. We will then recommend whether or not Oceanview should conduct market research. Evaluative points of the analysis will be provided, discussing inherent weaknesses of the analysis and a novel alternative solution will be provided.
Decision analysis
In a decision tree, the decision nodes are represented by numbered squares and the chance nodes, by numbered circles. The branches denote the sequential nature of the decision making process. To make the optimal decision, this sequence of events must first be determined, together with the probabilities of states of nature and the expected values at the chance nodes. The optimal decision can then be made by selecting the decision branch that will lead to the highest payoff value at the chance node.
If Oceanview does not conduct market research, it will have to decide whether to bid in the absence of market research information. If it decides not to, it will incur no loss nor make any gains, but if it decides to bid, it will have a probability of 0.2 of winning the bid. If it does not win, the bid will be recovered and no loss will be incurred, but if it wins, its payoff then depends on whether the referendum for zoning change is
Table of Contents
Main Report 3
Introduction3
Decision Analysis 3
Increasing the expected payoff 5
Conclusion 5
Appendix6
Decision Tree6
Calculation of probabilities 7
Calculation of expected payoff8
Relationship between the expected payoff and amount of bid9
Introduction
Decision analysis is an integral and powerful component in the decision making process, and can be used to determine the optimal decision alternative according to the criterion set by the business by objectively assessing the complicating factors and underlying issues of each decision. In this case study, the analysis of the problems faced by Oceanview Development Corporation will start off with a decision tree showing the logical sequence of the decision problem. We will then recommend whether or not Oceanview should conduct market research. Evaluative points of the analysis will be provided, discussing inherent weaknesses of the analysis and a novel alternative solution will be provided.
Decision analysis
In a decision tree, the decision nodes are represented by numbered squares and the chance nodes, by numbered circles. The branches denote the sequential nature of the decision making process. To make the optimal decision, this sequence of events must first be determined, together with the probabilities of states of nature and the expected values at the chance nodes. The optimal decision can then be made by selecting the decision branch that will lead to the highest payoff value at the chance node.
If Oceanview does not conduct market research, it will have to decide whether to bid in the absence of market research information. If it decides not to, it will incur no loss nor make any gains, but if it decides to bid, it will have a probability of 0.2 of winning the bid. If it does not win, the bid will be recovered and no loss will be incurred, but if it wins, its payoff then depends on whether the referendum for zoning change is