3: DECISION ANALYSIS SCENARIOS

Assume you are the owner of TheBlues Inc., an international manufacturer of electronic
products, and you are contemplating introducing a new type of Blue Ray player. After
considering the potential market share for the product, your accountant estimated that
after the first year of the new product on the market, TheBlues inc. may have a financial
result ranging from a loss of AUD 280,000 to a profit of AUD 800,000. To take a decision in
this situation, you need to assess your utility function over the expected financial outcomes.
In this task, you need to assess one of the quantiles of your utility function, chosen
depending on the last digit of your UTAS student ID number, as per the following table:

Last digit of
student ID 0 1 2 3 4 5 6 7 8 9
Quantile index 0.05 0.15 0.25 0.35 0.45 0.55 0.65 0.75 0.85 0.95
You need to perform the following:
a) Define the level of the error, Δ, that corresponds to the range of the attribute (the
financial result) and the expectations of the elicitation process.
b) Write in words the complete dialog to assess the uncertainty interval of the selected
α-quantile of utility, including:


i.Initial stage of the assessment process up till first indifference;
ii.Elicitation of the lower bound of the α-quantile of utility;
iii. Elicitation of the upper bound of the α-quantile of utility; and
iv. Determination of the final uncertainty interval of the selected α-quantile of
utility and its suggested point estimate.