Case 51: Kathy Smith’s Career Plans
Case 51: Kathy Smith’s Career Plans
Lawrence L. Lapin, San Jose State University
It is true that monetary value can take the place of actual preference, but it does not wholly capture one’s tendency towards risk, which is an important aspect of decision-making. Thus, depending on the situation, utility may be the best alternative in determining one’s decision. Such is the case in Kathy Smith’s dilemma. She faces the problem of whether or not to take on an MBA program. If she decides not to, she is ready to accept an offer for a full-time traveling sales position. However, if she decides to pursue an MBA, her completion of the program is still uncertain, with a probability of 0.70. Thus, there is a 0.30 chance of her not being able to complete the program. If she is able to complete her MBA program, she will apply for a consulting position, with a 0.80 chance of her getting in. Otherwise, there is a 0.20 chance that she will take on a position in corporate sales instead. If Kathy does not complete her MBA, she can start (late) with her career in a traveling sales position, or she can opt to move to corporate sales within one year after starting.
(1) As stated in the given, there are six outcomes, arranged in decreasing order of preference, that can arise from whatever Kathy decides on doing. Kathy assigned a utility value of 1000 to the best outcome of “MBA plus consulting, and 100 to the worst outcome of “traveling sales position, late start”. In order to find the utility values for each of the six possible outcomes, we must consider the following equation that assumes indifference between two possible outcomes, where:
Utility of other outcome = (p)(utility of best outcome) + (1-p)(utility of the worst outcome)
In this problem’s case, the utility derived from the best outcome is given as 1000, and the utility derived from the worst outcome is 100. Given the rest of the probabilities stated in the problem, the utility for each outcome can now be
Lawrence L. Lapin, San Jose State University
It is true that monetary value can take the place of actual preference, but it does not wholly capture one’s tendency towards risk, which is an important aspect of decision-making. Thus, depending on the situation, utility may be the best alternative in determining one’s decision. Such is the case in Kathy Smith’s dilemma. She faces the problem of whether or not to take on an MBA program. If she decides not to, she is ready to accept an offer for a full-time traveling sales position. However, if she decides to pursue an MBA, her completion of the program is still uncertain, with a probability of 0.70. Thus, there is a 0.30 chance of her not being able to complete the program. If she is able to complete her MBA program, she will apply for a consulting position, with a 0.80 chance of her getting in. Otherwise, there is a 0.20 chance that she will take on a position in corporate sales instead. If Kathy does not complete her MBA, she can start (late) with her career in a traveling sales position, or she can opt to move to corporate sales within one year after starting.
(1) As stated in the given, there are six outcomes, arranged in decreasing order of preference, that can arise from whatever Kathy decides on doing. Kathy assigned a utility value of 1000 to the best outcome of “MBA plus consulting, and 100 to the worst outcome of “traveling sales position, late start”. In order to find the utility values for each of the six possible outcomes, we must consider the following equation that assumes indifference between two possible outcomes, where:
Utility of other outcome = (p)(utility of best outcome) + (1-p)(utility of the worst outcome)
In this problem’s case, the utility derived from the best outcome is given as 1000, and the utility derived from the worst outcome is 100. Given the rest of the probabilities stated in the problem, the utility for each outcome can now be