A data science company is bidding on a predictive modeling project that, of course, involves uncertainty. Based on past experience, the company developed the following table:
|
Problems experienced
|
Smooth Sailing
|
Minimum
M
|
Typical
|
Worse Case
|
|
Project Cost
|
8500,000
|
S1,250,000
|
81,500,000
|
81,950,000
|
|
Associated
Probability
|
0.08
|
0.25
|
0.45
|
0.22
|
Assume that the firm is bidding competitively, and, based on their experience, the firm believes the expectation of successfully gaining the job at a bid of $2.3 million is 1%, at $2.15 million is 9%, at $2.0 million is 21%, at $1.85 million is 29%, at $1.75 million is 52%, at $1.65 million is 79%, and at $1.5 million is practically certain (99%).
a. Calculate the expected monetary value for the given bids.
b. What is the best bidding decision?
c. What is the expected value of perfect information?