Answer to Question #346371 in Statistics and Probability for Faith

Question

QUESTION ONE

Kisii sports club(KSC) is trying to decide whether or not to drill for water to solve the shortage of wat, based on past experience.

water 0.2

No water 0.8

It is possible for (KSC) to hire a firm of international consultants to carry out a complete survey of the site. KSC has used the firm many times before and has made the following estimates:

If there really is water, then there is a 95% chance that the report will be favorable.

If there is no water then there is only a 10% chance that the report will indicate that there is water.

The following additional information is also provided:

The cost of drilling is Sh.9 million.

The value of the benefits if water is found is Sh.65 million

The cost of obtaining information is Sh.3 million.

Required:

Advise the company on whether to acquire additional information from the consultants [10marks]

Compute the value of imperfect information.

Answer 1

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