SCENARIO 5-12
Two Different Designs on a New Line of Winter

question 234

Short Answer

SCENARIO 5-12
Two different designs on a new line of winter jackets for the coming winter are available for your
manufacturing plants. Your profit (in thousands of dollars) will depend on the taste of the consumers
when winter arrives. The probability of the three possible different tastes of the consumers and the
corresponding profits are presented in the following table. $$\begin{array} { | c | c | r | r | } \hline \text { Probability } & \text { Taste } & \text { Design A } & \text { Design B } \\\hline 0.2 & \text { more conservative } & 180 & 520 \\\hline 0.5 & \text { no change } & 230 & 310 \\\hline 0.3 & \text { more liberal } & 350 & 270 \\\hline\end{array}$$
-Referring to Scenario 5-12, if your investment preference is to maximize your expected profit and
not worry at all about the risk that you have to take, will you choose a production mix that will
consist of 10%, 30%, 50%, 70%, or 90% of your production lines for Design A and the remaining
for Design B?

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Definitions:

Presidential Election

A formal decision-making process by which a country's citizens select the President, the head of the executive branch of government.

Overconfidence

The tendency to overestimate the accuracy of one’s knowledge and judgments.

Hindsight Bias

The habit of assuming, once an outcome is known, that it was predictable beforehand.

Emotional Instability

A characteristic of individuals who experience rapid, intense emotional changes often in response to events that would not typically provoke such strong reactions.