Assignment:
Recall our home sales' problem. You are deciding between three agents to act as your seller's agent.
Each agent has the following information associated with him/her:
Agent A: 20% chance of selling at $400K; 60% of selling at $375K, 20% chance of selling at $350K; will receive 4% commission on sale
Agent B: 30% chance of selling at $400K; 40% of selling at $375K, 30% chance of selling at $350K; will receive 3% commission on sale
Agent C: 100% chance of selling at $375K; will receive a 2.5% commission on sale
1. Build a decision tree to model your problem.
2. Create a risk profile for the Matthers' expected net profit (minus commission) for each of the three agents.
3. Does any agent exhibit deterministic or stochastic dominance? Discuss any insights you achieve from the analysis.