Calculate the expected monetary value for the given bids

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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?

 

Reference no: EM131547566

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