Question

The banker Tom is going to fly to Turkey on August 5 and return home on August 20. It is now July 1. On July 1, he may buy a one-way ticket (for $350) or a round-trip ticket (for $660). He may also wait until August 1 to buy a ticket. On August 1, a one-way ticket will cost $370, and a round-trip ticket will cost $730. It is possible that between July 1 and August 1, his sister (who works for the airline) will be able to obtain a free one-way ticket for Tom. The probability that his sister will obtain the free ticket is .30. If Tom has bought a round-trip ticket on July 1 and his sister has obtained a free ticket, he may return “half” of his roundtrip to the airline. In this case, his total cost will be $330 plus a $50 penalty. Use a decision tree approach to determine how to minimize Tom’s expected cost of obtaining roundtrip transportation to Turkey.

Answer 1