BUSI 620 help Making Decisions/uophelp.com BUSI 620 help Making Decisions/uophelp.com | Page 32

Froeb et al.’s Chapter 19:
b) Individual problems: 19–5 and 19–6.
Salvatore's Chapter 15:
a) Discussion Questions: 7.
b) Problems: 8, 10, and spreadsheet problem 1.
Discussion Question 12: What is the rationale behind the minimax regret
rule? What are some of the less formal and precise methods of dealing
with uncertainty? When are these useful?
Discussion Question 15: How does the adverse selection problem arise
in the credit-card market? How do credit-card companies reduce the
adverse selection problem that they face? To what complaint does this
give rise?
Spreadsheet Problem 1: An individual has to choose between investment
A and investment B. The individual estimates that the income and
probability of the income from each investment are as given in the
following table.
Investment A
Income Probability
4,000
0.2
5,000
0.3
6,000
0.3
7,000
0.2
Investment B
Income Probability
4,000
0.3
6,000
0.4
8,000
0.3
1. Using Excel’s statistical tools, calculate the standard deviation of
the distribution of each investment.
2. Which of the two investments is more risky?
3. Which investment should the individual choose?