A Family Business Is Considering Making an Investment in Its

question 22

Multiple Choice

A family business is considering making an investment in its manufacturing operation.Three decisions are under consideration: (1) a large investment; (2) a medium investment;and (3) a small investment.The business believes that there are three possible future outcomes for its product: (1) increasing demand; (2) stable demand;and (3) decreasing demand.The business believes that the probability for increasing,stable and decreasing product demand are 0.4,0.5,and 0.1,respectively.The following payoff table describes the decision situation.

The expected value of perfect information for the family business is

• A)$602,500
• B)$540,000
• C)$62,500
• D)$25,000

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Definitions:

Foot-In-The-Door Phenomenon

A psychological tactic involving getting someone to agree to a small request to increase the chances of them agreeing to a larger request later.

Cognitive Dissonance

The psychological discomfort experienced when holding two or more conflicting thoughts, beliefs, values, or attitudes.

Role-Playing

A teaching or training technique that involves acting out situations or assuming the roles of characters to simulate real-life scenarios.

Cognitive Dissonance Theory

The theory that we act to reduce the discomfort (dissonance) we feel when two of our thoughts (cognitions) are inconsistent. For example, when our awareness of our attitudes and of our actions clash, we can reduce the resulting dissonance by changing our attitudes.