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Risk, Profit, And Predictions Essay: Analysis.

7 Pages / 1,517 Words Published On: 26-11-2020

Ilya and Gregor have very different approaches when it comes to risk. Whereas Ilya tends to be optimistic and likes to take risks, Gregor is much more conservative, and averse to risk-taking. They estimate that there is a 55% chance that the market is favourable, and therefore a 45% chance that it is unfavourable.

Provide answers, with justifications, for each of the following questions:

1. What would Ilya’s decision be? Why?
2. What would Gregor’s decision be? Why?
3. What would their decision be if they were to choose the alternative with the greatest expected value? Show all calculations and justify your answer. Ilya and Gregor now believe that the probability of a favourable market is not 55%.
4. Construct a plot showing how the expected value of the returns for Strategy 1 and Strategy 2 vary with the value of P (for 0 ≤ P ≤ 1), where P is the probability of a favourable market.

Questions

• What is the greatest number of people that Jim can reach weekly on his budget of \$14,000 per week?
• How many ads of each type must he in order to achieve this result?
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