David has just been fired as the university bookstore manager for setting prices too low (only 20 percent above suggested retail). He is considering opening a competing bookstore near the campus, and he has begun an analysis of the situation. There are two possible sites under consideration. One is relatively small, while the other is large. If he opens at the small site and demand is high, he will generate a profit of $50,000, but he will lose $10,000 if demand is low. If he opens at the large site and demand is high, he will generate a profit of $80,000, but he will lose $50,000 if demand is low. He also has the option of not opening at either site. He believes that there is a 50 percent chance that demand will be high.
a. Based on all the above assumptions, is this decision making problem a game theory problem, a decision making under uncertainty problem, or a decision making under risk problem? Why?
b. What should David do? Why?
c. A market research survey is available. Using decision tree analysis, it is found that the expected monetary value with the survey (including the survey cost) is $30,000. Should David use the survey? Why?