Question

The Precisa Ltd. can invest in a new production line for its best traded type of car tire. This has the potential to generate either losses of up to $120 000 at the end of first year after investment or profits of up to $350 000. You are a decision analyst working with Precisa Ltd. and for the sake of deciding whether to make this investment you need to construct the utility function of the CEO of Precisa Ltd. over the potential profits and losses.

Describe a detailed dialog with the CEO of Precisa Ltd. as a decision maker (and you as decision analyst) to elicit one of the utility quantiles over profits at a precision of  = $500 . (quantile index is .90)

Answer 1

As a desicion analyst of the Pecisa Ltd i would suggest that we should undertake the new production line project because the potential gain from the project is much higher than the losses that is of $120000 but if profit occure it will just three times of the losses that is $ 350000.

Even if loss occure we will have the utility quantile that is benefits for the formal quantitative analysis of probabilistic systems.One of the Quantile benefit to the entity will be it will be able to trade better and it will build good image in the society that will help in long term growth of the firm therefore we should accept the following proposal. Moreover the quantile index of 0.9 is too good and we should surely go with the project even if lead to loss beacuse it will help in growth and other advantages to the firm.