Consideration of his bidding strategy with regard to auction

Assignment Help Managerial Economics
Reference no: EM131195584

Managerial Economics

The past few years have seen a general decline in the economic conditions of the Royal Borough of Kingstown, the recent financial crisis has made this decline even more acute. Certain town officials, as well as other interested parties from Kingstown, believe that the legalisation of casino gambling will greatly improve the city's future. They have succeeded in having a gambling referendum placed on the ballot in next month's council voting.

One effect of the declining economic conditions of Kingstown has been the bankruptcy of the city's largest hotel the Kingstown Carlton. The Carlton is scheduled to be sold at a sealed bid auction next week. The terms of the auction call for an immediate 10% down payment by the highest bidder, with the remaining balance due in two months.

One party interested in bidding for the Carlton is Jeremiah Samouel, a real estate promoter and publisher of Fantasy Magazine. Jeremiah has learned from associates that there are at least three other parties interested in the property, including a syndicate from Chelmsford.

Jeremiah has decided that if he submits a bid it will be £5 million for the property. If he bids £5 million, he estimates he has a 25% chance of winning the auction. He also estimates that if the gambling vote is successful, he can sell the property for £7.5 million. If the initiative fails, he will sacrifice his 10% deposit.

Jeremiah believes, based upon polls taken to date, that the gambling vote has a 30% chance of passing. To help in his decision he is considering hiring the noted pollster, Russell Gallup, before the auction to give his opinion. Based upon Gallup's past record, Jeremiah estimates that the probability Gallup will correctly predict the outcome is 90%. Gallup's fee is £50,000.

The new project’s research department at Samouel's has been given the task of evaluating Jeremiah's best course of action. Specifically you and two colleagues in the department have control of the evaluation. It was initially your belief that Jeremiah is an expected monetary value optimiser, however recent discussions have led to some doubt about this. Particularly as Jeremiah recently indicated that he was indifferent between participation in a venture which exhibited a 50:50 chance of a payoff of -£50,000 or £225,000, and a riskless venture returning £50,000. Moreover when pressed Jeremiah had admitted that he would have bid no more than £50,000 to participate in the risky venture. This information suggests to you that an exponential utility function might capture Jeremiah's preferences.

Required:

Carry out an analysis from the standpoint of both EMV and expected utility to establish Jerimiah’s best course of action, including a consideration of his bidding strategy with regard to the auction. As part of your toolkit you have available a decision analysis aid called Treeplan. Jeremiah is aware of its existence and its cost. He therefore expects to see part of the analysis carried out using this. In particular any decision trees produced should be via the influence diagram approach. There should also be a clear statement of the mechanism by which Jeremiah’s Utility function might be estimated.

Produce a clear and precise report for Jeremiah, including a full sensitivity analysis of you results, given the subjective nature of the probabilities supplied.

Note:

Jeremiah’s choice must include consideration of using the pollster. Thus if that route is chosen then likelihoods must be conditioned on making this choice. This will require recognition of the fact in the influence diagram.

* Note, Upon completion of the marketing campaign, assume the odds of the successful granting of the casino license has increased to 60/40, based on the pollsters advises, which is 90% accurate.

Reference no: EM131195584

Questions Cloud

Identify the important attributes for your chosen product : Prepare a perceptual map for your chosen product/brand and using a minimum of seven competitors, rank each product/brand on the two variables based on how they are positioned in the consumers' minds.
Explore implication of increasing the detail of project plan : You will explore the implications of increasing the detail of a project plan during a project. Discuss the suggestions that you, as the project manager, would make to the client in relation to project costs and schedule.
Economic consequences of climate change : What were the demographic and economic consequences of climate change?
Place balances in proper order and prepare a balance sheet : Listed in random order are some of Oxford Services Company's account balances as of December 31, 2014.- Place the balances in proper order and prepare a balance sheet.
Consideration of his bidding strategy with regard to auction : The past few years have seen a general decline in the economic conditions of the Royal Borough of Kingstown, the recent financial crisis has made this decline even more acute. Carry out an analysis from the standpoint of both EMV and expected utility..
Some problems of mutual adjustment : In his classic article "The Individual and Organization - Some Problems of Mutual Adjustment," Chris Argyris argues that organizations work against the motivations of healthy, fully-functioning adults.
List and discuss three likely personality traits of cruiser : How can Cruisers Use Can hole to connect with others on the Internet and social networks? How can the company encourage the Cruisers to do so? How does Maslow's Hierarchy of needs applicable to this situation?
Write function that improve the performance of your program : Write another function that improve the performance of your program by using another sorting algorithm, discuss the Big O of the new algorithm use.

Reviews

Write a Review

Managerial Economics Questions & Answers

  Would redistributing incomes from the rich

1.Would redistributing incomes from the rich to the poor reduce the overall problem of scarcity?

  How is the definition of private property

Prepare a 2-3 page paper using APA format discussing how the Coase Theorem provides an alternative to government regulation and provision of services. How is the definition of private property a critical part of this analysis?

  One of the reasons joseph schumpeter argued that capital

one of the reasons joseph schumpeter argued that capital was doomed was because he predicted that big corporations

  What ways do the consumers gain or lose

1.Think of two examples of price discrimination. In what ways do the consumers gain or lose? What information would you need to be certain in your answer?

  Which of the following is segment of truckload motor freight

Which of the following is a segment of Truckload Motor Freight: Motor freight can be subdivided into more specific categories. Which of the following is a category of motor freight

  Which will become solutions to a system of two equations

Solve your system of equations by the addition/subtraction method. Make sure you show the necessary 5 steps. Use the example on page 426 of Mathematics in Our World as a guide.

  What are the differences between material participation

What are the differences between material participation, active participation, and significant participation?

  Determine economically efficient move

Business Week, in an article dealing with management, wrote, "When he took over furniture factory three years ago. Realized almost immediately that it was throwing away at least $100,000 a year worth of wood scrap.

  Calculating firms total revenue, cost and profits

Some games of strategy are cooperative. One example is deciding which side of road to drive on. It does not matter which side it is as long as everyone chooses similar side.

  Scores are obtained from the law school admission test

If the top 15% of the test scores are usually good enough for admission to law school, find the cut off score for gaining admission.

  Calculate the risk and return of the overall portfolio

You propose the following portfolio: 20% in A, 25% in B, 30% in C and 25 percent in government securities invested at the risk free rate. Suppose rate of return on A is 17%, B is 8 percent, C is 12%, risk free is 5 percent.

  How do you think the physician was compensated by the hmo

Indeed, HMO physicians have been criticized for not making referrals when they are warranted. How do you think the physician was compensated by the HMO? Explain.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd