Statistics & Decision Making

In this report, you must:

a. Explain whence these particular states of nature came

i. Alternatives:

1. Settle before Discount Software Trial

2. Do not settle before Discount Software Trial

a. States of Nature:

i. Focus wins trial and sues Forward

ii. Focus wins trial and does not sue Forward

iii. Focus loses trial and still sues Forward

iv. Focus loses trial and does not sue Forward

ii. Alternatives, if Focus sues Forward:

1. Settle after Focus sues Forward

2. Go to trial after Focus sues Forward

a. States of Nature:

i. Focus wins trial

ii. Focus loses trial

b. Describe at least one state of nature that might be relevant to these decisions but was omitted

i. Focus loses trial and still sues Forward

This state of nature is important because there is an unknown probability of Focus still pursuing a lawsuit against Forward, if the Discount trial is lost. Additionally, if they did proceed after a loss, we do not know the probabilities of a settlement or of a trial.

c. Focusing on the Expected Utility (aka the EMV) of each decision, explain why the “best” decisions are in fact best. In other words, explain where their EMV values came from and how they compare to the alternatives

All EMV values are a combination of the price risk and the probability of an outcome.