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

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Use of Bayesian Decision Analysis to Assess if Conducting Marketing Research is Worthwhile. Reading (from Dillon, Madden, and Firtle (1990). Decision Tree. Payoff Table for Pricing Decision. Prior probabilities. Example #1. Optimal choice without additional research information. - PowerPoint PPT Presentation

Text of 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