Dr. Michael R. Hyman
Use of Bayesian Decision Analysis to Assess if Conducting Marketing Research
is Worthwhile
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Reading (from Dillon, Madden, and Firtle (1990)
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Decision Tree
9Table contains alternatives, states of nature, and consequences
Example #1
Payoff Table for Pricing DecisionPrior probabilities
Optimal choice without additional research information
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Conditional Probability of Getting Each Test Market Result Given Each State of Nature
Read by Row (Zk) within Column (Sj)
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Revision of Prior Probabilities in Light of Possible Test Market Results
Notice difference in revised (post-research) distribution of demand probabilities
Sj = State of Nature; Zk = Level of Success in Test
Σ=1.0
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Optimal choice if test market result is Z1
Optimal choice if test market result is Z2
Optimal choice if test market result is Z3
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Example #2
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Solution to Example #2
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Revision of Prior Probabilities in Light of Research Information that Surveys Unlimited Might Provide
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Example #3—You Solve
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Study Questions