Decision Theory and House
DEBBIE AND GEORGE CALVERT ARE THINKING OF MAKING AN OFFER TO PURCHASE A HOUSE IN SHAKER HEIGHTS, OHIO. BOTH GEORGE AND DEBBIE SAW THE HOUSE THIS MORNING AND FELL IN LOVE WITH IT. THE ASKING PRICE FOR THE HOUSE IS $4000,000.00 AND IT HAS BEEN ON THE MARKET FOR ONLY ONE DAY. THEIR BROKER TOLD THEM THAT WERE MORE THAN 20 POTENTIAL BUYERS WHO SAW THE HOUSE THAT DAY. SHE ALSO ADDED THAT ANOTHER BROKER TOLD HER THAT AND OFFER ON THE HOUSE WAS GOING TO PRESENTED BY THAT BROKER THIS AFTERNOON. THEIR BROKER HAS ADVICE THEM THAT IF THEY DECIDE TO MAKE AND OFFER OF THE HOUSE, THEY SHOULD OFFER VERY CLOSE TO THE ASKING PRICE OF $400,000.00. SHE ALSO ADDED THAT IF THERE ARE COMPETING OFFERS ON THE HOUSE THAT ARE CLOSE IN VALUE, THEN IT IS COMMON PRECTICE FOR THE SELLER TO ASK THE POTENTIAL BUYERS TO SUBMIT THEIR FINAL OFFERS THE FOLLOWING DAY.
TRYING TO BE OBJETIVE ABOUT THIS DECISION, DEBBIE HAS DECIDED TO CONSTRUCT A DECISION TREE TO HELP HER WITH THIS DECISION. SHE HAS ASSUMED THAT THE "FAIR MARKERT VALUE" OF THE HOUSE UNDER CONSIDERATION IS $400,000.00. SHE HAS ASSIGNED AND "EMOTIONAL VALUE" OF $10,000.00 IF SHE AND GEORGE ARE SUCCESSFUL IN PURCHASING THE HOUSE. THAT IS, WHEREAS THE FAIR MARKET VALUE OF THE HOUSE IS $400,000.00 THE HOUSE IS WORTH $410,000,00 TO DEBBIE AND GEORGE.THUS, IF THEY WERE TO BE SUCCESSFUL IN PURCHASING THE HOUSE FOR $390,000.00 THE VALUE OF THIS OUTCOME WOULD BE $20,000.00. OF COURSE, IF THEY WERE NOT DEBBIE HAS ALSO ASSIGNED A PROBABILITY OF 0.30 THAT THEY WILL BE THE ONLY BIDDERS ON THE HOUSE.
DEBBIE HAS DECIDED TO CONSIDER MAKING ONE OF ONLY THREE OFFERS: $390,000.00, $400,000.00 OR $405,000.00. SHE ESTIMATES THAT IF THEY ARE THE ONLY BIDDERS THE PROBABILITY THAT AND OFFER $390,000.00 IS ACCEPTED IS 0.40, THE PROBABILITY THAT AND OFFER OF THE $4000,000.00 IS ACEPTED IS 0.60, AND THE PROBABILITY THAT AN OFFER OF $405,000.00 IS ACCEPTED IS 0.90.
IF, HOWEVER THERE ARE THE BIDDDERS, DEBBIE ASSUMES THAT THE SELLER WILL ASK THEM HAVE TO
TRYING TO BE OBJETIVE ABOUT THIS DECISION, DEBBIE HAS DECIDED TO CONSTRUCT A DECISION TREE TO HELP HER WITH THIS DECISION. SHE HAS ASSUMED THAT THE "FAIR MARKERT VALUE" OF THE HOUSE UNDER CONSIDERATION IS $400,000.00. SHE HAS ASSIGNED AND "EMOTIONAL VALUE" OF $10,000.00 IF SHE AND GEORGE ARE SUCCESSFUL IN PURCHASING THE HOUSE. THAT IS, WHEREAS THE FAIR MARKET VALUE OF THE HOUSE IS $400,000.00 THE HOUSE IS WORTH $410,000,00 TO DEBBIE AND GEORGE.THUS, IF THEY WERE TO BE SUCCESSFUL IN PURCHASING THE HOUSE FOR $390,000.00 THE VALUE OF THIS OUTCOME WOULD BE $20,000.00. OF COURSE, IF THEY WERE NOT DEBBIE HAS ALSO ASSIGNED A PROBABILITY OF 0.30 THAT THEY WILL BE THE ONLY BIDDERS ON THE HOUSE.
DEBBIE HAS DECIDED TO CONSIDER MAKING ONE OF ONLY THREE OFFERS: $390,000.00, $400,000.00 OR $405,000.00. SHE ESTIMATES THAT IF THEY ARE THE ONLY BIDDERS THE PROBABILITY THAT AND OFFER $390,000.00 IS ACCEPTED IS 0.40, THE PROBABILITY THAT AND OFFER OF THE $4000,000.00 IS ACEPTED IS 0.60, AND THE PROBABILITY THAT AN OFFER OF $405,000.00 IS ACCEPTED IS 0.90.
IF, HOWEVER THERE ARE THE BIDDDERS, DEBBIE ASSUMES THAT THE SELLER WILL ASK THEM HAVE TO