Probability of correctly detecting the state of nature

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Reference no: EM13968795

Many airlines ?ying overseas have recently considered changing the kinds of goods they sell at their in-?ight duty-free services. Swiss, for example, is considering selling watches instead of the usual liquor and cigarettes. A Swiss executive believes that there is a 0.60 chance that passengers would prefer these goods to the usual items and that revenues from in-?ight sales would increase by $500,000 over a period of several years. She believes there is a 0.40 chance that revenues would decrease by $700,000, which would happen should people not buy the watches and instead desire the usual items. Testing the new idea on actual ?ights would cost $60,000, and the results would have a 0.85 probability of correctly detecting the state of nature. What should Swiss do?

Reference no: EM13968795

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