Jaune Magazine (JM) must decide whether or not to publish a tell-all story about
ID: 2654121 • Letter: J
Question
Jaune Magazine (JM) must decide whether or not to publish a tell-all story about a celebrity. If the story ends up having major impact, JM will realize substantial profits from additional magazine sales, subscriptions, and advertising revenues. However, if JM publishes the story, JM will face a lawsuit; if it loses the suit, the penalties could be substantial. The tree below summarizes JM's decision.
If JM publishes the story, the publisher may feel remorse for having violated the celebrity's privacy. For what values of the cost of remorse would not publishing the story be preferable to publishing the story on the basis of EMV?
A) Higher than $10,000
B) Lower than $10,000
C) Lower than $12,500
D) None of the above.
Profits EMV: $90,000 Win Suit $360,000 10% 20% EMV: $10,000 Lose Suit $60.000 90% Publish Win Suit $0 EMV: -$10.000 80% 80% Lose Suit-$50,000 20% Don't Publish $0Explanation / Answer
The EMV for publishing is $10,000 after computing for all the possible outcomes from publishing (summation of the values of outcome*respective probabilities for the different states that may occur through the decision to publish).
Not publishing has an EMV of $0.
Therefore publishing is viable so long as cost of remorse is < $10,000.
Should the cost of remorse be > than $10,000 then publishing would not be viable.
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