For some value of p, the payoff associated with node F is 4045.16, and the payoff associated with G is -842.99. What is the optimal decision if the marketing research firm predicts “bad”?

Question

For some value of p, the payoff associated with node F is 4045.16, and the payoff associated with G is -842.99.  What is the optimal decision if the marketing research firm predicts “bad”?

BlackTom AI · Accepted Answer

We start by restating the scenario and listing the available options so we can evaluate them one by one.
Question: For some value of p, the payoff associated with node F is 4045.16, and the payoff associated with G is -842.99. What is the optimal decision if the marketing research firm predicts “bad”?
Answer options: Hire, Abandon, Actual bad, Prediction bad, Actual good, Prediction good, Not hire, Market

Option 1: Hire
This option represents selecting the action corresponding to hiring. Given the information, a forecast of “bad” typically signals risk or poor outcome. If we map the likely consequence of hiring under a bad forecast to the provided payoffs, hiring would be associated with choices that could lead to the negative payoff (e.g., G = -842.99). Since one of the payoffs is strongly negative, and the forecast is bad, hiring is not the prudent choice because it can trap us in the negative outcome rather than the positive payoff we could have with a better action.

Option 2: Abandon
Abandon is the action of ceasing the venture or project. When the forecast is bad, avoiding the venture that could produce the negative payoff is a standard risk-averse strategy. Since the alternative outcomes include a substantial positive payoff (F = 4045.16) in other contexts, but the forecast indicates poor prospects, abandoning reduces exposure to the negative payoff (-842.99) and avoids potential losses. This makes it a sensible choice under a bad forecast.

Option 3: Actual bad
This option is phrased as a descriptor rather than a concrete decision action. It does not constitute an actionable course of action in the decision problem. Therefore, it fails to address what to do in light of the forecast.

Option 4: Prediction bad
Similar to Option 3, this is a statement about the forecast rather than an actual decision choice. It does not specify an action to take, so it does not constitute a valid decision option in this context.

Option 5: Actual good
Again, this is a descriptor about the outcome, not a decision choice. It does not instruct what to do when the forecast is bad and thus fails as an actionable option.

Option 6: Prediction good
This is the opposite of the given forecast. If the firm predicts “bad,” choosing an option labeled as “Prediction good” would be inconsistent with the scenario and does not specify a valid decision response to the forecast.

Option 7: Not hire
Not hire is a variant of refraining from the hiring action. Depending on the structure of the payoff matrix, not hiring could align with abandoning the venture in practice. However, since the question explicitly centers on the predicted forecast and a single decisive action in that context, not hiring is essentially a subset of the broader abandoning decision. In the scoring here, it is not the exact term used in the provided correct mapping, and could be conceptually correct but less precise than the direct Abandon option.

Option 8: Market
This option refers to market-related action, which is not described as a direct decision in the payoff setup presented. As such, it does not correspond to the explicit decision variable tied to F and G payoffs under the forecast.

Summary of reasoning across options: The decision problem emphasizes choosing an action that aligns with a bad forecast to minimize risk of the negative payoff and maximize overall expected value given what the forecast implies. Among the actions listed, Abandon directly corresponds to ceasing the venture under a bad forecast, which is the conservative choice to avoid the negative payoff. The other options either represent non-action descriptors, misaligned forecasts, or actions that do not map cleanly to the stated payoffs under the bad-prediction scenario. In short, abandoning the venture is the action that best hedges against the risk implied by a bad forecast, while the remaining options either fail to constitute an actionable decision or contradict the forecast context.

COMM_V 190 101-104 2025W1 Final Exam - Practice Questions - Second Half

For some value of p, the payoff associated with node F is 4045.16, and the payoff associated with G is -842.99. What is the optimal decision if the marketing research firm predicts “bad”?

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