Problem 1.

Give an example of a good decision that you made in the face of some uncertainty. Was the
lucky or unlucky? Can you give an example of a poorly made decision whose outcome was lu
Answer:

I was face with the decision of accepting a job as a data analyst or waiting to see if I got a di
a training coordinator. I made the decision to turn down the job not knowing if I would get th

I did this because I knew if I got the job as a training coordinator I would have a flexible sch
could attend graduate school. I also knew who I could be reporting to, and they have a gene
attitude to me. The weights were in favor of the job as the training coordinator, even if I was
the position would open up.
The outcome was lucky and I got that job, so I now got to attend graduate school.

A poorly made decision with a lucky outcome was the decision to buy my textbooks from a u
very poor ratings, but low prices. I ran the risk of not getting my books on time. I was lucky h
becasue everything turned out all right in my case.

me uncertainty. Was the outcome

n whose outcome was lucky?

aiting to see if I got a different job as

nowing if I would get the other.

ould have a flexible scheduele and

, and they have a general positive
oordinator, even if I was unsure that

duate school.

y my textbooks from a user who had

ks on time. I was lucky however,

Jesse DeGrendel, Devansh Gupta, Parinay Jajoo, Anup Chitikene

a, Parinay Jajoo, Anup Chitikeneni

Problem 1.7

In the Rice University football example, what are some of the issues that you would consider in ma
are the alternative courses of action? What issues invove uncertainty, and how could you get infor
uncertainty? What are the alternative courses of action? What are the values held by the oposing
decisions make tradeoffs amoung these values?

Some of the issues that I would consider is the reaction the students and other groups might have
change, price change, or uality change to the program. There are different measures that can be t
lead to a different outcome.

The alternatives to droping down to division III is an increase in ticket prices. The university could
could also do fundraising, this way those who value the football program the most are the ones pa

The biggest issue of uncertainty is the reaction of the students and fans. They could riot, or refuse
the program further. They could also shake it off like it is not a big deal. To manage this uncertaint
survey students, fans, and alumni alike.

As mentioned before, I would go with a course of action of raising the ticket cost and fundraising.
not every student. If the demand for football games is relativly inelstic, thy could retain almost all

Some groups think that football is very iportant to the schools reputation and their utility values o
university, while others more than likly care little to none when it comes to this, they may see it a
their tution higher.

Finally the biggest trade off will be the reputation and utility, for a more profitable program if the s

If the school raises the ticket prices the trade off will be the sum of the increased sales taken from
the fans. So the school will get a higher producer surplus, bringing them closer to a more profitabl
program, where the fans will not get to be as happy.

In both scenarios the fans are less happy, one more than the other. But, only in the first one dos th
its reputation.

ou would consider in making this decision? What

how could you get information to resolve that
es held by the oposing groups? How might your

ther groups might have if there is a division

measures that can be taken, but each woud

s. The university could also raise tutuion. It

he most are the ones paying for it.

hey could riot, or refuse to attend game, hurting

manage this uncertainty the university could

t cost and fundraising. This way it affcts fans, nd

could retain almost all of their fans.

nd their utility values of attending the

this, they may see it as something keeping

ofitable program if the school goes to III

eased sales taken from the consumer surplus of

oser to a more profitable (in this case lower loss)

ly in the first one dos the school loose somee of

Jesse DeGrendel, Devansh Gupta, Parinay Jajoo, Anup Chitikene

inay Jajoo, Anup Chitikeneni

Jesse DeGrendel, Devansh Gupta, Parinay Jajoo

2.1.a:

My main objective in this context would be to buy a brand new car which can be used for my dail
Alternatives I have:
I can go for a sports car (like corvette) considering the performance like high
I can get a muscle car like (Ford Mustang, Chevrolet Camaro or Dodge Challe
I can simply get a full size car, which is fuel efficient and from a reliable mak
Considering the unpredictable weather in Michigan and giving preference to
Depending on the budget I would like to spend and the key factors I would consider, I can
2.1.b:

In this context, my objective find any means of transportation that would allow me to complete m
Alternative I have: (all of them except the first one were not considered in the narrower decision c
If I want to complete my daily tasks comfortably and save time, would defini
oConsidering to avoid risks in future I would by a brand new
oReady to take risks, I can consider buying a pre-owned car
I would talk to the people around me (colleagues, school mates or people liv
I can travel by a taxi whenever I need to travel some
I can rely on public transport like buses, rails or sub ways for commuting bet
Can also walk between places, if they are of shorter distances
Buy a bicycle, to travel between places which is the cheapest possible option
2.1.c:

I can further broaden the decision context, and define the new objective. Here my objective woul
My new alternatives would be:
Find a job which can provide transportation facility like cab for both pick u
Find a job which has work from home facility and only needs me in the offi
Online Shopping
Stop running errands unless they are very important or related to very im
Arrange regular meet ups or hang outs with friends at my place (just like
2.1.d:

The planning horizon definitely changes. Each time we broaden the decision context there will be

h Gupta, Parinay Jajoo, Anup Chitikeneni

be used for my daily commuting purposes.

erformance like high speed of the car but I need to consider the fact that it has a higher maintenance cost
aro or Dodge Challenger) where I can show-off to all the people I know, but again this is a costly affair
from a reliable make like Honda or Toyota which also lasts long and has a lower maintenance cost
giving preference to safety I might think to buy an AWD enabled SUV like Ford-150 or an Acura MDX
ould consider, I can definitely narrow the list of alternatives and can decide on one car.

w me to complete my daily tasks.

e narrower decision context above)
e time, would definitely buy a car where I can drive to where ever and whenever required.
ould by a brand new car
ing a pre-owned car
mates or people living around) to arrange a car-pool along with them to reach my daily destinations

s for commuting between places

apest possible option. It is also a good health exercise and doesnt contribute to the pollution

e my objective would then be to find a way to minimize my travelling.

e cab for both pick up and drop

needs me in the office occasionally

or related to very important people

t my place (just like hosting a house party)

context there will be more alternatives to be considered as the main objective changes drastically.

maintenance cost
s a costly affair
nance cost
n Acura MDX

destinations

drastically.

2.8

Describe a decision problem that you have faced recently (or with which you are currently strugglin
Describe the decision context and your objectives. What were the specific decision that you faced,
and what were the uncertainties? Describe the possible outcomes.
Recently, in my car I started hearing a weired noice when I used my breaks.

The decision context was what I should do to move forward. I could have ignored the noise and we
about my daily drive, or I could take it in to get looked at. If I got it looked at I could then ddecide i
wanted to take action or now.

I had a few objectives in this. My first one was safty. This was important because a car can be a
dangerous place if the breaks stop working. My other objectives were maintain car ownership for m
daily commute to work, and minimze costs.
My biggest uncertainty was if there was anything wrong or not. I would not be minimizing cost if I
took in the car and there was nothing wrong with it. But, If iI ignored it, I could loose my car all
together.
I ended up taking the car in and having to get the breaks replaced. This ended up being the right
choice as I was able to get all but $25 of it covered.

u are currently struggling).

decision that you faced,

nored the noise and went

t I could then ddecide if I

ause a car can be a

tain car ownership for my

be minimizing cost if I
uld loose my car all

ded up being the right

Names
Jesse DeGrendel, Devansh Gupta, Parinay Jajoo, Anup Chitikeneni

nup Chitikeneni

A friend asks you for a loan of $1,000 and offers to pay you back
at the rate of $90 per month fot 12 months.
A) Using a annual interest rate of 10%, find the net present value
(to you) of loaning your friend the money, repeat using an
interest rate of 20%
B) Find an interest rate that gives you a net present value of 0.
The interest rate for which NPV = 0 is often called the internal
rate of return.
The answers are highlighted in yellow

Step one rearrange equation

so that -1000(1+i)^0 or
-1000/1 is added to both sides
making the new equation

Step 3+4 (3)Distribute, (4)

-1000 from both sides

Loan Ammount:
Monthly Payment:
Yearly Payment

$1,000
$90
$1,080

Names
Jesse DeGrendel, Devansh Gupta, Parinay Jajoo, An

Part A
Interest Rate:
NPV: with 10%

NPV with 20%

10% or
X
(1+r)

20%
X
(1+r)^1

-1000
(1.1)^0

1080
(1.1)^1

($16.53)

-1000
(1.2)^0

1080
(1.2)^1

($83.33)

X(n)
(1+r)

Part B
Interest Rate:

NPV:

Equation

Step one rearrange equation

so that -1000(1+i)^0 or
1000/1 is added to both sides
making the new equation

tep 3+4 (3)Distribute, (4)

-1000 from both sides

Solve for

8%

($0.00)

-1000
(1 + i)^0

1000 =

1000(1+i) =

1080
(1+i)^1

1080
(1+i)^1
1080
Step 2 We can multiply both sides
by (1+i)^1 we can also frop ^1, as
anything to the power of 1 is itself

1000+1000i =
1000i =
i =

1080
80
0.08

Step 5 Divide by 1000

to get 8%

upta, Parinay Jajoo, Anup Chitikeneni

Explain Part A
If we look at part we can see that we had
to solve for the net present value by using
the formula listed. We can take the initial
pay ou of $1000 as the initial payment,
then after a year, we make back 1080, this
is the sum of all monthly payments. It is
calculated as one due to the rate being
annual. We see in this case, the higher the
rate, the lower the NPV, this is due to
higher oportunity cost leading to a greater
loss.

Explain Part B
In part B we are going to use the same
formula, but we will be solving for I (the
interest rate) instead of NPV. We are told
the NPV is to be 0, and all payments are
given to us. We can plug in 0 to NPV and
solve for a interest rate of 8%. Follow the
steps to the left

Politician's basic risky decision

Run for
Senate
House

Win?
Yes
No
Yes

Outcome
Senateor
Lawer
US Representative

3.8
Create an inflence diagram for the politician's decision in figure 3.25 using precision Tree.
Include the table showing decision alternatives, chance event outcomes and consequences.
We can see that the alternitive is running for the house. However, it is an essentially
gurenteed win to the candidate. So it does not have to be included.
If the candidate picks to run fo senate, there is a chance they loose. In this case, they beome a
laywer. It is most ideal to have the position in the senate, but there is more risk to take on
when taking this path. The individual may end up in the worse possible situation, having to
become a laywer.

Win Senate Election?

precision Tree.
d consequences.

ssentially

case, they beome a

risk to take on
ation, having to

Run for Senate?

Outcome

Jesse DeGrendel, Devansh

esse DeGrendel, Devansh Gupta, Parinay Jajoo, Anup Chitikeneni

Names
Jesse DeGrendel, Devansh Gupta, Parinay Jajoo, Anup Chitikeneni
3.14
Modify the influence diagram in figure 3.11 (the hurricane forecast example) so
that it contains nodes for each of the two objectives (maximize safty and
minimize cost). Cost has a maximum attribute, but how can you define safty?
Create an attribte scale you can use to measure the degree of danger you might
enounter during a hurricane
As we can see in the added nodes, you can see that the decision will affect if we
maximize safty as a top pick, or if we minimze cost.
We also have the idea of how to measure maximize safty. We an measure safty
in the number of injuries that could occur. If we wanted to be more specific, we
can look at the amount of medical cost that occur from a hurricane. We can also
look at the power of the storm.

Hurricane Path

Forecast

Maximize Safty

Consequence

Decision

Minimize Cost

Best Telescope

Jesse DeGrendel, Devansh Gupta, Parinay Jajoo, An

Maximize quality of astronomy

Maximize image clarity

Maximize enjoyment of viewing sessions

Maximize brightness

Maximize image defnition

Maximize stability

Max additional viewing a

Min light pollution in sky

Max visits to dark-sky site

Max transportability

Names
h Gupta, Parinay Jajoo, Anup Chitikeneni

ality of astronomy

In this question the main objective is to get the best

When further reading the book we can break this do
through maximizing the image clairity, maximizing t
and maximizing the astronomy. I put it in this order
least important.

For me as a amiture astronomer, I see the image qu

important because I think it feeds into the other two

Max quality of tracking device

ax additional viewing accessories

Min cost of telescope

Min total weight

Minimize telescope size

When looking at maximizing image clairity we can g

fort his through the maximization of brightness, as m
it causes the telescope to capture mroe light, maxim
important to the image, and mazimizeze deffinition.

The next is the maximization of viewing sessions. I p

pollution in the sky, which can be achieved by visitin
can be achived by maximizing transportibility of the

Finally we have the maximization of quality. I saw th

As an amiture astronomer, I would not be needing th
two. THis can be done though max additional viewin
minimizing the cost, to minimize the weight to minim
the max quality of tracking.

ective is to get the best telescope possible.

ok we can break this down as being achieved
ge clairity, maximizing the viewing sessions,
my. I put it in this order as most important to

mer, I see the image quality as the most

eeds into the other two in a way.

image clairity we can get the means objectives

ation of brightness, as mentioned in the article,
pture mroe light, maximize stability, as it is
mazimizeze deffinition.

of viewing sessions. I put the one as min light

n be achieved by visiting dark blue sky, which
g transportibility of the telescope.

ation of quality. I saw this as the least important.

would not be needing that as much as the other
h max additional viewing accessories,
mize the weight to minimize the size. Finally is