Paper answering 3 Questions - Making decisions with uncertainty

User Generated

ynooengg

Business Finance

Description

1st Section: Game Show Uncertainty

In the final round of a TV game show, contestants have a chance to increase their current winnings of $1 million to $2 million. If they are wrong, their prize is decreased to $500,000. A contestant thinks his guess will be right 50% of the time. Should he play? What is the lowest probability of a correct guess that would make playing profitable? (no minimum number of words)

2nd Section: Hiring

The HR department is trying to fill a vacant position for a job with a small talent pool. Valid applications arrive every week or so, and the applicants all seem to bring different levels of expertise. For each applicant, the HR manager gathers information by trying to verify various claims on resumes, but some doubt about fit always lingers when a decision to hire or not is to be made. What are the Type I and II decision error costs? Which decision error is more likely to be discovered by the CEO? How does this affect the HR manager’s hiring decisions? (no minimum number of words)

3rd Section: Uncertainty

Describe a decision your company has made when facing uncertainty. Compute the expected costs and benefits of the decision. Offer advice on how to proceed. Compute the profit consequences of the advice. Address the following decisions in your response (500-750 words):

1.What environmental factors and risks must be considered in the company's decision-making process?

2.Evaluate costs factors influencing the company's decision.

3.Determine strategies that would provide value to the outcome your company is seeking relating to this decision.

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Explanation & Answer

Attached.

Running Head: DECISION MAKING UNDER UNCERTAINTY

Decision Making Under Uncertainty
Name
Instructor
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Date

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DECISION MAKING UNDER UNCERTAINITY

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1st Section: Game Show Uncertainty
From the case presented, the contestant should play since he has a 50% chance of winning $ 1
million and 50% chance of losing $ 500,000. In this case we can proceed to calculate it as ($
1,000,000 X 0.5 = $ 500,000). Again we have ($ 1,000,000 X 0.5 - $ 500,000 X 0.5) = $ 250,000
Alternatively we can approach the case as below:
It cost $1 million to play; if a participant is right, he wins $ 2 million and if he is wrong he only
wins $ 500, 000. Therefore, the expected value of playing the $ 1 million is given by
(0.5*2000000 + 0.5*500000) = $1,250,000. This is higher than the cost of playing and therefore
the minimum probability of a guess that would make the play profitable to the participants can be
arrived at by:
$1,000,000(x) + (-$500,000) (1-x) = 0$1,000,000x -$500,000 + $500,000x = 0$1,500,000x =
$500,000X = ($500,000/$1,500,000) X = 1/3
= 33.3%
2nd Section: Hiring
In the context of hiring and recruitment, the error revolves around accepting an applicant
you should have rejected or rejecting an applicant you should have hired. Human Resource
Managers are therefore tasked with the responsibility of ensuring such errors are avoided through
thorough analysis of all applicants and their qualificat...


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