# Probability trees

Jim Sellers is thinking about producing a new type of electric razor for men. If the market were favorable he would get a return of 60,000. Since Ron Bush is a good friend of Jim Sellers, Jim is considering the possibility of using Bush Marketing Research to gather additional information about the market for the razor. Ron has suggested that Jimeither use a survey or a pilot study to test the market. The survey would be a sophisticated questionnaire administered to a test market. It will cost 20,000. Ron Bush has suggested that it would be a good idea for Jim to conduct either the survey or the pilot before Jim makes the decision concerning whether to produce the new razor. ButJim is not sure if the value of the survey or the pilot is worththe cost. Jim estimates that the probability of a successful market without performing a survey or pilot study is0.5. Furthermore, the probability of a favorable survey result given a favorable market for razors is 0.7, and the probability of a favorable survey result given an unsuccessful market for razors is 0.2. In addition, the probability of an unfavorable pilot study given an unfavorable market is 0.9, and the probability of ann unsuccessful pilot study result given a favorable market for razors is 0.2.

Draw the decision tree for this problem without the probability values. Computer the revised probabilities needed to complete the decision, and place these values in the decision tree. What is the best decision for Jim? Use Expected MonetaryValue (EMV) as the decision criterion.