Problem 1

The Chief Information Officer (CIO) at Old Dominion University -ODU- is trying to improve the university's information network security. The CIO is trying to evaluate a new intrusion detection technology in the market for possible replacement for the existing system. An intrusion detection system sounds an "alarm" each time possible malicious attack on a network is detected. The following information is provided:
n Probability of an actual malicious attack is 0.01.

• For the currently installed system, the probability of an alarm given that there is an actual malicious attack is 0.9, while the probability of an alarm given there is not a malicious attack is 0.25.

• For the new technology, the probability of an alarm given that there is an actual malicious attack is 0.8, while the probability of an alarm given there is not a malicious attack is 0.1.
n The CIO assumes that there are only two types of events: either there is or there is no malicious attack.

• The CIO is using "evidence ratio," described as P(B IA) / P(B I A') as a way to compare the technologies. Please help the CIO compare the new technology with the currently installed system by answering the following questions:

1. Based on the definition of evidence ratio in the previous paragraph, what is the evidence ratio for the currently installed system?

2. What is the evidence ratio for the new technology?

3. Which technology is better? Existing technology or new technology?

Problem 2

Frodo, a junior engineer at Baggins Metal Works is considering the introduction of a new line of products. in order to produce the new line, the company needs either a major or minor renovation of the current plant. The market for the new line of products could be either favorable or unfavorable, each with equal chance of occurrence. The company has the option of not developing the new product line at all.
With major renovation, the company's payoff from a favorable market is $100,000, from an unfavorable market, $ -90,000. Minor renovation and favorable market has a payoff of $40,000 and an unfavorable market, 5-20,000. Not developing the new product line effectively has $0 payoff.

Frodo realizes that he should get more information before making his final decision. He contracted with Gandalf Market Research to conduct a market analysis to determine for certain if the market will be favorable or unfavorable. How much is the maximum amount Frodo should be willing to pay for this accurate information? (Please indicate your answer to the nearest whole number)