Question

An oil company must decide whether to drill off the coast of Sable Island. It costs...

An oil company must decide whether to drill off the coast of Sable Island. It costs $1 million to drill, and if oil is found its value is estimated at $6 million. At present, the company believes there is a 45% chance that oil is present. Before drilling begins, the oil company can hire a geologist for $100,000 to obtain samples and test for oil. There is only about a 60% chance that the geologist will issue a favourable report. Given that the geologist does issue a favourable report, there is an 80% chance that there is oil. Given an unfavourable report, there is a 10% chance that there is oil. Use a decision tree to determine what the oil company should do.

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