Use of Bayesian Decision Analysis to Assess if Conducting Marketing Research is Worthwhile

Use of Bayesian Decision Analysis to Assess if Conducting Marketing Researchis Worthwhile

Dr. Michael R. Hyman

Reading (from Dillon, Madden, and Firtle (1990)

Decision Tree

Payoff Table for Pricing DecisionTable contains alternatives, states of nature, and consequencesExample #1Prior probabilitiesOptimal choice without additional research information

Conditional Probability of Getting Each Test Market Result Given Each State of NatureRead by Row (Zk) within Column (Sj)

Revision of Prior Probabilities in Light of Possible Test Market ResultsNotice difference in revised (post-research) distribution of demand probabilitiesSj = State of Nature; Zk = Level of Success in Test =1.0

Optimal choice if test market result is Z1Optimal choice if test market result is Z2Optimal choice if test market result is Z3

Example #2

Solution to Example #2

Revision of Prior Probabilities in Light of Research Information that Surveys Unlimited Might Provide

Example #3You Solve

Study Questions