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by | Nov 7, 2022 | Statistics | 0 comments

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Read the Freemark Abbey Winery Case (attached) and then, as a group, perform the following tasks and answer the questions below. Recall from the case that the winemaker has a decision to make: Harvest now for a 100% certain outcome or wait and hope for botrytis. If he waits, then there’s a variety of outcomes contingent on a storm occurring (or not), botrytis forming (or not), etc.
While Mr. Jaeger, an expert in growing grapes to produce wine, is well versed in the probabilities of certain events occurring, you are being consulted to help him understand the possible financial outcomes of these decisions.
1. Construct a decision tree that accounts for each of the possible outcomes in the case. Be sure to clearly show the structure of the decision, which decisions are choices, which are probabilistic outcomes, and the value of each end point on the tree. NOTE: Ignore the “low value/half revenue” option if it rains and botrytis doesn’t come.
2. What is the value of eliminating uncertainty and harvesting now?
3. What is the value if it rains and botrytis occurs?
4. What is the maximum outcome available if it rains but botrytis does not form?
5. What are the three possible outcomes and values if he waits but rain does not occur?
6. What is the expected value of waiting to see if a storm occurs?
7. Based just on the information available in the case, what should Mr. Jaeger do? Why? Justify your answer with a few sentences.
8. Bonus: Let’s say an advanced weather forecast is available that can provide essentially guaranteed storm forecasts. How much should Mr. Jaeger be willing to pay to get this information?
Submit your decision tree as an Excel file. Submit your answers to the above questions as a word document. There’s no need to write a report – just numbered answers are sufficient.

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