A television network has been receiving low ratings for its programs. Currently, management is considering two alternatives for the Monday night 8:00 p.m.- 9:00 p.m. time slot; a western with a well-known star or a musical variety with a relatively unknown husband and wife team. The % of viewing audience estimates depend on the degree program acceptance. The relevant data are as follows:
% of Viewing Audience
Program Acceptance Western Musical Variety
High 30% 40%
Moderate 25% 20%
Poor 20% 15%
The probabilities associated with program acceptance levels are as follows:
Probabilities
Program Acceptance Western Musical Variety
High 0.30 0.30
Moderate 0.60 0.40
Poor 0.10 0.30
a. Using the expected value approach, which program should the network choose?
b. For a utility analysis, what is the appropriate lottery?
c. Based on the lottery in part (b), assume that the network’s program manager has assigned the following indifference probabilities. Based on the use of utility measures, which program would you recommend? Is the manager a risk taker or risk avoider?
Percentage of Audience Indifference Probability (p)
30% 0.40
25% 0.30
20% 0.10